about the idea of extending to commodity accounts similar insurance protections that are currently available to securities accounts under the securities investor protection act. and how we can continue regulatory oversight and coordination where large, complex, global financial institutions. mf global may aelso provide som early lessons, since it is the first collapse of a major financial institution since the law's passage. the story of mf global teaches us that effective customer protection and market oversight demands that we fully fund our

regulatory. in hindsight there is little doubt that regulators responsible for monitoring mf global should have taken additional steps. by short changing the ym will oy force them to delegate even more authority to self regulatory organizations in a way that could impart effective market surveillance. regulators inspecting firms or sending staff to monitor crisis, the american people and market confidence pay the price. initially, the key of the wall street reform bill was in the end too big to fill. and if -- mf global, demonstrate anything, it is that those who take the risky bets have been

down, their companies, are now afraid to fail and will not receive any more taxpayer bailouts. opening statements will be limited to the chair and ranking member, however i would look to premind my colleagues that the record will open for the next seven days for other materials. i now turn to ranking member shelby. >> thank you, mr. chairman. thank you for calling this very important hearing. the collapse -- the collapse of mf global is one of the largest bankruptcies in u.s. history. and the greatest consumer protection failure since the enactment of the dodd-frank act. it's been six months or more since mf global filed for bankruptcy. the ownership of $1.6 billion in customer assets remains in dispute. hundreds of mf global customers

are still waiting to learn how much, if any, of their funds will be returned to them. the disorderly failure of mf global occurred despite the fact that it was regulated by not only the cfdc and sec, but also the financial industry regulatory association, the chicago board options ex-campaign j. national future as association and chicago merck an tile exchange. the job of each regulator was to ensure customer assets were protected. that $1.6 billion in customer assets remains subject to ownership disputt that remains subject to ownership dispute revelsz a serious regulatory failure i believe. accordingly the purpose of today's hearing should be to ten the committee determine which regulators failed to do their job, and why. to assist this effort. i asked the inspector general last november to examine the

commission's overnight and regulation of mf global. the inspector general's findings along with other ongoing investigations should assist congress in its efforts to hold regulators accountable for any identified failures. i asked the c sfchinspector gen whether he should have recused him self earlier in the process. prior to mf global bankruptcy, chairman ginzler had contacts with mf global and ceo john corzine, concerning, the regulation of the firm. if a recusal was appropriate it seems it would have, would have been more appropriate to start with mr. corzine's tenure rather than after the firm failed. this committee's due diligence has revealed that chairman

ginsler played active role in the oversight of fm global. yet, chairman's recusal shields him from excusing his actions. i believe this is unacceptable. the chairman owes the public a full accounting of his role in the fall of mf global. it appears, by his absence today, however, that we will have off to wait a little bit longer for much an accounting. mf global will not be the last financial firm to fail. failure is an inevitable part of the free-market system. but our goal should be not to protect the private market from failure, our goal, i believe, should be to establish a credible regulatory system that protects consumers while leaving the market. free to expand. we must then hold the that regulatory system accountable for its failures. this is exceedingly difficult

when one main participant refuses to speak here. i look forward to the testimony today, and i thank our witnesses for appearing. perhaps one day, mr. chairman, we will hear from mr. ginsler. today does not appear to be that day, however. >> thank you. thank you, senator shelby. now i will briefly introduce our witnesses. mr. james w.gins is a trustee for the securities investor protection act of mf global incorporated. lewis j.freeh is a trustee from mf global holdings, honorable gerald summers is commissioner for the commodity futures trading commission. mr. robert cook speche is direc trading and markets for u.s. securities and exchange commission. mr. richard ketchum is chairman

and ceo of the financial industry regulatory authority. mr. charles a. duffy is executive chairman of the chicago mercantile exchange. i thank all of you, again, for being here today. i would look to ask the witnesses to please keep your remarks to five minutes. your full written statements will be included in the hearing record. mr. gins, you may begin your testimony. >> chairman johnson, ranking member shelby and members of xhet. thank y -- committee. thank you for inviting me to testify. i take seriously my duty as trustee of mf global inc., to treat themic w equitably.

i would look to present studies. a lack of supervision and inattention to maintaining segregation of customer accounts caused short fall of customer funds. the possible remedy is imposing personal liability on senior officers and directors where there is a regulatory short fall. consideration should also be given to requiring not only financial operating principles, but senior officers including the ceo and the cfo. to certify compliance with commodity segregation requirements on a much more frequent basis. secondly. i suggest the establishment of a commodities customer protection fund. we found that more than three quarters of the commodities customers had accounts of a value of less than $100,000 each.

as the fund providing protection up to maximum of $100,000, would have made a substantial number of the claimants whole within days of the bankruptcy filing. third we have learned that many commodities customers have not understood the nature and risk of certain financial products in which their funds were invested. currently commodities customers are not subject to suitability requirements as are securities customers. in my view they should be. as a fourth suggestion, future commissions merchants may be required to segregate an amount in excess 100% of customer funds. that would help ensure that there is a sufficient cushion at all times for commodities customers. let me turn to funds held for u.s. customers trading on foreign exchanges. under current rules, fcms are

not required to calculate segregation requirements for foreign trading in the same way as for domestic trading. reliance on this alternative calculation resulted in a substantial difference in funds segregated. the alternative calculation had been in place, would have required a greater segregation. the alternative calculation should be eliminated. finally, i believe there is a great need for international cooperation on in solve ensy la -- solv solvency laws. i have been engaged in active discussions since november with administrators of mf global/uk limited concerning the return of $700 million of commodities customers property. this dispute is now being

submitted to the uk courts for resolution. in concluding, my staff and i continue to work as quickly as possible to return assets to all claimants. we have distributed in excess of $4 billion. we have sought court approval off to distribute an additional $685 million to commodities claimants. thank you, chairman johnson. ranking member shelby and members of the committee for the opportunity to testify before you. >> thank you. please proceed. >> thank you very much. good morning, chairman, johnson, senator shelby and your colleagues. thank you for the opportunity to appear here. you have my opening statement. i want to highlight a few thing for you. and leave sufficient time obviously for your questions and my colleagues on the panel. i was appointed as chapter 11 trustee effective november 28th of last year.

there are in addition to mf global holdings, five other subsidiaries to which i am acting as the chapter 11 trustee. i think everyone understands the functions of the chapter 11 trustee, very distinction and very different from, my colleague, mr. gibbons. on to the bankruptsybankruptsy bankruptcy. i look at assets. liabilities and financial conditions of the debtors among other things. under like mr. gibb bonn whoone. the responsibility of the chapter 11 trustee ties maximize the estate for the creditors. we have a list of many creditors including the top 20 which i believe is in the materials. when i was appointed in november, i landed in the middle of a number of issues.

first, very ongoing active investigations. by the agencies represented here this morning. in addition, to two federal prosecutors offices as well as the trustee. one of my first challenges was to understand what documents the -- the chapter 11 trustee and the estates controlled so i could make some -- arrangements and -- ensure that investigators could access the information they needed without compromising any of the privileges that i have of the fiduciary responsibility to protect. so we looked at -- thousands of materials, my team and i which consists of lawyers, financial experts, and investigators. we determined what the materials were over which we had authority and jurisdiction. we reviewed thousands of pages. and we then -- set in place a process that would quickly produce documents to the

investigators. we did a limited waver of the existing privileges that may appertain to the chapter 11 trustee. i was happy to say that all those issues were resolved and the process of producing evidence to investigators has gone forward ex-peditiously. we are sensitive off to the fact that many customers have lost huge amounts of money and -- in collateral that was entrusted to in this case, the subsidiary, mf global inc. we scrubbed our own cash collateral upon direction bite bankruptcy judge to make sure none of the cash collateral in the estate is in any way related to or would be part of the customer accounts. and we concluded with no disagreement -- from mr. giddens and his staff that the cash collateral that the estates now

possess, does not include any misappropriated or misdirected customer funds. let me also talk, i am pleased to be able to talk about the -- the subject of bonuses. this was raised very appropriately. senator tester by you and your colleagues. the source of this was -- as you know, a media report. and i don't have control over what is in the media, no more than anybody in this room does. i want to make it very clear i was never my intention to pay any bonuses. i never had a plan in place. to pay any bonuses, to senior executives. i read the story with a lot of surprise. there had been no discussions between myself and my staff, about bonuses to -- to senior executives. and bonuses are not part of my consideration now and they have not been in the past. i want to be as clear as i can about that. my responsibilities as trustee is to maintain the people that i

need right now to -- to help administer a cost efficient and -- well administered estate. so there are -- 15 employees. these are noninsider employees who worry about tax, who worry about -- financing, unwinding transactions, they're all working at this point on salaries. the three senior executives, who have been, i believe, before the senate -- are working also on salaries. if i have to negotiate with any of the -- employees, the noninsiders, 15 employees to stay on board because there is a $22 million tax refund that i need to get for the estate, they have the expertise and experience, i will -- i will set fair and competitive salaries with them if they -- if they don't agree with that. that's not going to work out. i want to remain -- transparent

as i must in this bankruptcy process. everything i do is subject to -- to review not just by the trustee, but bankruptcy court. all the fees and expenses have to be reviewed there. so i want to conduct the -- the chapter 11 debtor estates with full transparency and cooperation. and in closing i just want to say, i have worked cooperatively with mr. giddens, our staffs, are in some times daily contact. we meet on a regular basis. there will be times when our interests diverge as the interests of other parties in this very complex and i think long-running bankruptcy will occur. we have clear, common goals to get as many assets back to the estates as possible. and then ultimately courts in england, per bankruptcy court i

ultimately make decision as but how the assets are distributed. but sharing the information, getting the assets, returning them, is, is -- is ate very common critical need. from the perspective of the trustee, i am very much endorse the -- the six very important considerations that he sets forth. particularly on the international cooperation. we have a lot of assets we believe that are in the uk. uk has a separate administrator. separate court system. we don't have privity as the holdings company to challenge and file some of the claims as subsidiary inc. will do. but it is a very difficult task to -- to get facts and return assets overseas. some restriction as but how segregation should be mandated for u.s. investors overseas is a key one from the point of view of chapter 11 trustee.

i would emphasize that. thank you very much. >> thank you. good morning, chairman johnson, ranking member shelby and members of the committee. thank you for inviting me to discuss the collapse of mf global, and policy implications. on november 9, 2011, the commission voted to make me senior commissioner with respect to mf global matters. this authorizes me to exercise the executive and administrative functions of the commission solely with respect to the pending enforcement investigation, the bankruptcy proceedings and other actions to locate or recover customer funds or determine the reasons for the shortfall in the customer accounts. while i am happy to be here today to testify the scope of my election as senior commissioner for mf global matters does not extend to the marketwide policy implications arising from mf

global's failure. chairman gensler remains in charge of directing commission staff to develop recommendations for enhancing commission and designated self-regulatory organization programs that are related to the protection of customer funds and has instructed staff to do so. my focus has been on making sure that the commission is doing everything it can to facilitate the recovery of customer funds and to bring those responsible for any violations of the commodity exchange act or commission regulations to justice. towards those ends, over the past 5 1/2 months. commission shtaff has conduct ad thorough analysis of the books and records of mf global. and continues to work in the bankruptcy. we are also engaging in a comprehensive, ongoing enforcement investigation. it is imperative that the commission, the industry, and the congress, identify and assess the causes for the

collapse and shortfall in customer funds. and to take corrective action where possible. we must do everything in our power to restore con fip denfid the markets so producers, processors and end users of commodities can once again hedge their price risks without fear of their fund being lost or frozen. section 4 d of the cea commission and regulations require that an fcm holding customer funds treat such funds as belonging to the customer at all times. fcms are prohibited from using a customer fund to margin or guarantee trades or contracts of another customer or of the fcm. and the fcm must maintain sufficient funds in segregated accounts to cover the net liquidating equity of each of its customers at any given point in time. our regulations also require an

fcm to hold customer funds, deposited for trading futures and options, listed on foreign boards of trade, in separate accounts known as part 30 secured accounts. the part 30 rules provide for an alternative calculation of the amount of funds required to be segregated, that does not afford the same protections. as the net liquidating equity calculation used for section 4 d funds. this is something that i think should be changed. the act and the commission regulations establish a regulatory structure or front line financial regulation is performeded by designated self regulatory organizations. the chicago exchange and national futures association are the two primary futures market. fcms are subject to cftc approved minimum financial and reporting requirements that are

enforced in the first instance. many fcms are also registered with the fcc as broker/dealers. these duly registered broker dealer fcms are subject to the jurisdiction of both. to ensure that all activities of adealer are properly reviewed, sros coordinate their regulatory oversight. this coordination includes periodic meetings of the inner market surveillance group. mf global was a duly registered fcm and was subject to the cftc and sec, it was the dsro for mf globals futures markets activities and had primary responsibility for overseeing the fcms compliance with capital, segregation, and financial reporting obligations required by the cftc. prior to the bankruptcy the

futures and securities regulators shared information and examination results regarding mf global. in august 2011, mf global filed statements and regulatory notices with the cftc as a result of additional capital charges that the sec required the broker dealer to take on with regard to certain repoed maturity transactions on foreign sovereign debt. at approximately the same time. sec staff, contacted cftc staff to inform us of capital charges. the cftc staff also consulted with cme, finera, and cbo, regarding the rationale for additional capital charges. commission staff consulted with domestic and foreign regulators during the period of october 24th, through october 31st, as well as in the critical hours leading up to the bankruptcy

filing. at the direction of chairman gensler, commission staff continues to review customer fund protection provisions of the commodity exchange act and our commission regulation to identify possible improvements. while the staff has not yet pro posed amendments to the commission, it is expected that they will make recommendations in several areas. at a minimum, i believe that changes should be made to our part 30 rules so customer funds held for trading on foreign markets are set to the liquidity regulations. that more information be provided to customers regarding how their funds are held and invested. and that more frequent reporting be provided to regulators and that fcms internal controls for the handling of customer funds be strengthened. i understand the severe hardship that mf gloeblz bankruptcy caused for thousands of customers who have not yet been

made hole. customers may have correctly understood risks associated with trading futures and optionsable. they never an miss patrioted thpatrioted -- anticipated their segregated accounts were at risk of suffering losses. short fall in customer fund was a shock to the market from which we have not yet recovered. i believe the commission can make improvements to our regulatory oversight, of fcms and dsros to help restore confidence in the futures market and i will help the commission and congress to implement the rules necessary to enhance our ability to protect market users and to foster open competitive and financially sound markets. thank you. thank you. mr. cook, please proceed. good morning. my name is robert cook. i am the director of the division of trading and markets

of the securities and exchange commission. thank you for the opportunity to testify on behalf of the commission, concerning the lessons learned and policy implications of the collapse of mf global. the bankruptcy of mf global has resulted in serious hardship for many of its customers who have experienced significant delays and uncertainty with respect to ability to access their own assets. more broadly, the failure of mf global and the shortfall in customer assets. highlight the need for financial firms and for regulators to remain vigilant in ensuring customer assets are appropriately protected. sec rules are designed to protect customer property by prohibiting broker dealers from using customer funds and securities to support proprietary positions and expenses. broker dealers that hold securities or cash for customers must maintain physical possession or control over securities that customers have paid for in full and cannot use the securities to support the firm's business activities.

further, when broker dealers extend credit to allow customers to buy securities on margin, the rules limit how much of the securities the broker deemer can pledge to finance that credit it extended to customers. the rules also protect cash held for customers or derived from customer securities. rishg the bro requiring the broker dealer to maintain a bank account, in an amount that exceeds net amounts owed customers. these funds cannot be invested in any instrument not guaranteed by full faith and credit of the u.s. government. together with applicable sec capital requirements, and protections under the securities investor fro teprotection act t to ensure if a broker dealer fails, customer securities and funds will be available to be returned to the customers. the preferred, preferred method of returning securities customer assets in a cipa liquidation is

to transfer the assets to a broker dealer. on december 9, the bankruptcy court approved the initial sale and transfer of all skus myrcus accounts. it applied to approximately 318 accounts held for nonaffiliated securities customers. the trustee, since the transfer, nearly all former mf global customers have received 60% or more of their account value. 149 customers have received the entirety of their account balances. we understand the 194 customers include any one entitled to an advance with the claim, net equity up to 1.25 million. jen really the rules governing protection of customer funds and securities have worked reasonably well over time. but we are considering whether there are ways they can be strengthened. the clarification and strengthen offed its