The bankruptcy of MF Global and the failure of one of the most serious regulators of the world SEC and CFTC should be attributed to the largest scandals of the world, in which both auditors and financial regulators are involved. In contrast to the FSA and World Spreads scandal (which is often compared in scale to MF Global), where pure fraud took place, this story lies solely with the MF Global management, who misjudged the risks of investment. True, regulators who have misplaced the investment strategy are also responsible for bankruptcy, discrediting US financial control.
- SEC – Securities and Exchange Commission (established in 1934), is one of the most significant regulators of the US stock market;
- CFTC – Commodity Futures Trading Commission. On weight concedes only NFA, regulates the market of derivatives of the USA.
Financial control in the USA is losing
MF Global is a multi-level brokerage company that ranked 7th in terms of asset size among US brokers at the time of bankruptcy. According to the results of the 3rd quarter of 2011, the company, which has an excellent financial result, suddenly showed a loss of 191.6 billion dollars. United States – with assets of 41 billion in total debt amounted to 39.7 billion, after which the company instantly depreciated.
Before bankruptcy (which is among the 8 largest in US history), MF Global was put on the same level as Deutsche Bank due to its leading positions in handling assets in the primary government debt market. US financial control was simply obliged to closely monitor companies of this class.
- The reason for the bankruptcy of MF Global is the reliance on the reliability of European sovereign bonds and a too large share of repo operations, namely, building a kind of financial pyramid (raising money for off-balance sheet operations). Subject to the stability of European markets, the scheme worked (MF Global acted as an intermediary between the investor and the issuer). After the crisis in Greece, Italy and Spain, sovereign bonds depreciated, leading to a broker liquidity crisis.
Total. After the declaration of bankruptcy of MF Global, pension and insurance funds immediately filed claims against investment banks (allegedly they had convinced the day before to invest in a broker money). The SEC and CFTC chose to wash their hands, referring to PwC reports (and the Big Four broker was involved here). The reputation of Deutsche Bank, Bank of America, Citigroup, JP Morgan has suffered, but most importantly, the financial control of the United States does not know how many US investment banks carry out such operations!
Summary. For the domestic investor working in Forex with a deposit of 0.1-10 thousand dollars. The United States (about 460 thousand active clients in Russia and most of them have a relatively small deposit) will have little sense from the regulator’s license from the broker, since returning at least some of the money will be more expensive. The only thing that a license can testify to is the broker’s willingness to pay annual fees (and they differ greatly) and file financial statements. But, as practice shows, this does not save a broker from bankruptcy.
It remains to add that the FxCash rebate service includes both brokers and DCs, but none of them have yet been found to be fraud. We care about our reputation by carefully choosing partners.
FxCash – reliability for the client is always in the first place!