On Monday, the CFTC unanimously voted to approve a rule to prevent futures commission merchants from using customer funds for repurchase agreements. Such agreements, commonly known as “repos”, allowed a futures firm to swap customer assets for securities, such as municipal bonds or foreign government bonds, held in another division of the firm. The futures firm would then pocket the higher interest rates the securities yield.
After the vote, CFTC chairman, Gary Gensler, said that he believed “there is an inherent conflict of interest between parts of a firm doing these transactions.” Under the new rule, futures merchants can still invest customer cash, but must do so through a third party, such as a bank. The rule also limits the ability of firms to invest client money in risky foreign sovereign debt. The new rule will be published in the Federal Register within 60 days and will take effect within 180 days.