CFTC acts to protect trader collateral, endorses 'Volcker rule'
By Christopher Doering
Thursday, January 12, 2012
WASHINGTON -- The futures regulator on Wednesday adopted new protections for customer collateral posted in swap trades, and said it plans a broader look into client safeguards, as the search continues for hundreds of millions of dollars in missing MF Global customer money.
The Commodity Futures Trading Commission also proposed its draft of the Volcker rule that cracks down on banks' risky trading, a version similar to one introduced by four other regulators last October.
The measure to protect swap traders' collateral used in trades to reduce risk was approved by a 4-1 vote.
The rule was called for in the Dodd-Frank financial oversight law, but efforts to boost protection and segregation of customer collateral have gained momentum following the collapse of futures brokerage MF Global in October.
... Dispatch continues below ...
Prophecy Drills 384.9 Meters Grading 0.623 g/t PGM+Au,
0.3% Ni, 0.15% Cu (0.45% NiEq) From Surface At Yukon Wellgreen Project
Company Press Release
Thursday, December 8, 2011
VANCOUVER, British Columbia -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) has announced the final drill results from 2011 drilling at the company's fully owned Wellgreen platinum group metals, nickel, and copper project in the Yukon Territory.
Borehole WS11-192 intercepted 384.9 meters of 0.45 percent nickel equivalent starting from 9.45 meters depth. Included in this greater interval of continuous mineralization is a platinum group metals-rich zone with a combined platinum-palladium-gold grade of 1.358 grams per ton over 19.23 meters (nickel equivalent 0.74%).
The final drilling results for 2011 have shown the Wellgreen Central-East and Central-West deposits to be one contiguous body, whereby there is good potential to broaden significantly the Central-West resource base, which currently contributes only about a quarter of the current 43-101 compliant resource at Wellgreen. Overall the drilling program met with good success in expanding the resource to the east and south. The long drill intercepts suggest the deposit remains very much open in those directions.
For the complete drilling results and the full company statement, please visit:
Investigators have estimated there is a $600 million to $1.2 billion shortfall of MF Global customer funds. Regulators have said it appears MF Global improperly diverted customer funds for the firm's use.
Thousands of MF Global customers, including many farmers who use futures to hedge risks, have had their money frozen.
Chairman Gary Gensler said the CFTC is expanding its look into the adequacy of customer protections, and may consider extending the swaps safeguards adopted on Wednesday to futures as well.
Futures are typically used by farmers and smaller traders to hedge risks, while over-the-counter swaps tend to be dominated by larger corporations and banks.
CFTC Republican Jill Sommers was the lone vote against the measure. She expressed concern the CFTC was taking "a piecemeal approach" to consumer protection by giving special treatment to swaps customers, but not those involving futures.
The rulemaking drew similar skepticism from Congress.
"Today's actions will do little to reassure the many farmers, who have lost their own property, that efforts to mitigate another MF Global are being factored into new rule changes," said House Agriculture Committee Chairman Frank Lucas.
The rule to protect swap traders' collateral, close to what the CFTC proposed in April, allows brokers to pool customer collateral but would prevent them from commingling the funds with their own capital.
It also lays out what happens in the event of a default. If one occurs by both the clearing member and one or more of its customers, the clearinghouse can only collect collateral of the defaulting member, or its own resources.
Each individual account would be legally protected and funds from non-defaulting members could not be tapped to cover losses from another firms' default.
Scott O'Malia, a Republican CFTC commissioner, warned the rule would not necessarily prevent another fiasco similar to MF Global.
"I believe that it is important to detail (our rule's) limitations, so that we do not offer market participants a misleading sense of comfort in light of the collapse of MF Global, Inc," said O'Malia, who voted for the rule despite his concerns.
The rule protects against fellow-customer risk. It does not protect against two other types: operational risk where an intermediary improperly segregates cleared swaps customer collateral, or investment risk where an intermediary experiences losses on its investment of cleared swaps customer collateral, which it cannot cover using its capital, he said.
Bart Chilton, a Democratic commissioner, pushed for further measures to protect U.S. investors and consumers, saying the "lessons of MF Global teach us that we don't have the luxury of time in making additional progress to protect customers."
Daniel Waldman, a partner with law firm Arnold & Porter and a former CFTC general counsel, said Wednesday's measure was a good first step.
"But a lot more will follow. They will need to address the MF (Global) issue" and improve protection for customer funds held by brokers, said Waldman.
The CFTC has finalized nearly two dozen rules, but it is behind on completing much of a regulatory framework for the $700 trillion over-the-counter derivatives market required under the Dodd-Frank law. Many of the high-profile and controversial rules remain.
The CFTC also voted 3-2 to propose its version of the Volcker rule that is designed to prevent U.S. banks from trading with their own funds and prohibit banks from investing in or sponsoring, beyond a small amount, hedge funds or private equity funds.
It would have the most impact on large banks such as Goldman Sachs and Morgan Stanley.
The CFTC said its proposal largely mirrors an October proposal from the Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency that is now open to public comment.
The CFTC's proposal, however, includes about a dozen questions asking whether certain provisions of the joint Volcker rule should not apply to banking entities regulated by the CFTC. The proposal will be open to a 60-day public comment period.
O'Malia and Sommers voted against the proposal. Sommers said the CFTC hasn't taken enough time to consider all of its implications, while O'Malia said the proposal could deter smaller banks from serving a market-making function while reducing the capacity of large dealers to provide liquidity.
The CFTC also approved on Wednesday rules for registration of swap dealers and major swap participants, and business conduct standards for swap dealers and major swap participants with counterparties.
The futures regulator has tentatively scheduled a rule-making meeting for January 25 when the CFTC is expected to vote on joint rules with the Securities and Exchange Commission on defining a swap dealer and a major swap participant.
* * *
Join GATA here:
Vancouver Resource Investment Conference
Sunday-Monday, January 22-23, 2012
Vancouver Convention Centre West
Vancouver, British Columbia, Canada
California Investment Conference
Saturday-Sunday, February 11-12, 2012
Hyatt Grand Champions Resort
Indian Wells, California, USA
Support GATA by purchasing gold and silver commemorative coins:
Or by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters
From a Company Press Release
November 22, 2011
VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.
"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."
Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.
For the company's complete press release, please visit: