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Neugebauer, Conaway in jurisdictional battle over CFTC

The release Thursday of a House Financial Services subcommittee report on MF Global has set up a jurisdictional clash between two Texas Republicans who both sit on the House Agriculture Committee.
Rep. Randy Neugebauer, R-Texas

Rep. Randy Neugebauer, R-Texas
Rep. Randy Neugebauer, chairman of the House Financial Services Subcommittee on Oversight and Investigations, released a report on the collapse of the brokerage firm MF Global which raised the issue of whether the Securities and Exchange Commission and the Commodity Futures Trading Commission should be combined for greater efficiency and investor security.

The report, which was prepared by the subcommittee staff after a year-long investigation, recommended that “the SEC and the CFTC streamline their operations, or merge into a single financial regulatory agency that would have oversight of the entire capital markets.”

But it also said, “The MF Global case alone does not necessitate the merger of the SEC and the CFTC; however the evidence found in the MF Global case is symptomatic of regulatory inefficiencies. As financial products, markets, and market participants have converged, the SEC’s and the CFTC’s regulatory jurisdictions have increasingly overlapped. It only makes sense to collapse these entities and create a regulatory framework that brings us into the 21st century.”

The SEC comes under the jurisdiction of the House Financial Services Committee while the CFTC comes under the jurisdiction of the House Agriculture Committee.
Rep. Michael Conaway, R-Texas

Rep. Michael Conaway, R-Texas
After Neugebauer released the report, Rep. Michael Conaway, chairman of the House Agriculture General Farm Commodities and Risk Management Subcommittee, issued a news release saying that “I do not assume the intent of this report was to provoke the perennial argument about merging the CFTC and SEC. A jurisdictional fight between committees is quite possibly the least helpful thing Congress can do for MF Global’s customers right now.”

“We would do a disservice to our constituents if we read through this report and simply assume that a new super-regulator would have prevented MF Global,” Conaway added.

“The fact is, the CFTC and the SEC regulate markets that have fundamentally different purposes and serve investors that need fundamentally different protections,” he said. “One regulator cannot fit all.”

Neither Neugbauer nor Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, addressed the merger question in their statements accompanying the report.

“We conducted this investigation because MF Global customers deserve to know how and why their funds went missing; market participants deserve to know whether regulatory lapses have been identified and will be corrected; and taxpayers deserve to know that regulators are being held accountable so similar losses may be prevented from occurring in the future,” Neugebauer said in the news release.
Rep. Spencer Bachus, R-Ala.

Rep. Spencer Bachus, R-Ala.
“Despite the promise of Dodd-Frank that regulators would work together, what the Subcommittee’s investigation found is there was no meaningful coordination among the regulators who were responsible for the supervision of MF Global,” Bachus said.

“This left each regulator with an incomplete understanding of the company’s financial health — and MF Global’s customers paid the price,” Bachus said. “This, once again, raises the question of whether regulators are so preoccupied writing hundreds of new rules that they’re missing the basics like safeguarding customer funds and protecting investors from financial frauds.”

The report said that Jon Corzine, the former New Jersey Democratic governor and U.S. senator who headed the firm, did not have enough knowledge of the futures business to transform MF Global from a brokerage firm that specialized in agricultural commodities into an investment bank that invested in European sovereign debt.

When the firm’s bet on the sovereign debt proved to be an unsuccessful business strategy and the firm collapsed, the report said, farmers who had left money with the firm found that they could not gain access to it, at least initially.

The report also recommended that Congress should consider enacting legislation that imposes civil liability on the officers and directors that sign a FCM’s financial statements or authorize specific transfers from customer segregated accounts for regulatory shortfalls of segregated customer funds.