CFTC Warns Court against Granting Investor Protections to FX Traders
- The American Commodity Futures Trading Commission (CFTC) came out in court against a hedge fund’s demand for priority repayment from Lehman Brothers of its OTC FX trading under the Securities Investor Protection Act.
The American financial regulator, the Commodity Futures Trading Commission (CFTC), has taken a strong stand against an interpretation of the U.S securities law that might extend investor protection to Over-the-Counter (OTC) FX traders.
Moore Capital Management LP is a hedge fund that used to trade OTC FX with Lehman Brothers before the investment bank went bankrupt. The fund appealed to a U.S court requesting to be considered as a client of Lehman Brothers and therefore getting priority over other unsecured creditors waiting for the repayment of Lehman's debt.
In a legal brief presented to the court on Friday, January 9th, the CFTC said that declaring the hedge fund a client of Lehman and giving priority to its $12 million FX debt would set a “dangerous precedent” that OTC FX deals that aren't financed from segregated clients funds must be covered against losses by the Securities Investor Protection Act (SIPA), according to the legal news service Law360.
The CFTC said that it considers Moore Capital’s position "untenable as a matter of law because deposits that Moore made to Lehman Bros in connection with Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term trades were never subject to the customer-property protections required by regulations for commodity contracts. Outside of those protections, the bankruptcy code alone cannot elevate unregulated, off-Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term transactions into the type that receives priority.”
In 2012, another U.S court already rejected the claim that OTC FX traders deserve to be be in the group of Lehman Brothers' former clients who receive SIPA priority repayments. A number of institutional forex traders, such as Moore Capital, have appealed but considering the position of the CFTC it is unlikely any of them will eventually succeed in bypassing the line of creditors.
The American financial regulator, the Commodity Futures Trading Commission (CFTC), has taken a strong stand against an interpretation of the U.S securities law that might extend investor protection to Over-the-Counter (OTC) FX traders.
Moore Capital Management LP is a hedge fund that used to trade OTC FX with Lehman Brothers before the investment bank went bankrupt. The fund appealed to a U.S court requesting to be considered as a client of Lehman Brothers and therefore getting priority over other unsecured creditors waiting for the repayment of Lehman's debt.
In a legal brief presented to the court on Friday, January 9th, the CFTC said that declaring the hedge fund a client of Lehman and giving priority to its $12 million FX debt would set a “dangerous precedent” that OTC FX deals that aren't financed from segregated clients funds must be covered against losses by the Securities Investor Protection Act (SIPA), according to the legal news service Law360.
The CFTC said that it considers Moore Capital’s position "untenable as a matter of law because deposits that Moore made to Lehman Bros in connection with Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term trades were never subject to the customer-property protections required by regulations for commodity contracts. Outside of those protections, the bankruptcy code alone cannot elevate unregulated, off-Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term transactions into the type that receives priority.”
In 2012, another U.S court already rejected the claim that OTC FX traders deserve to be be in the group of Lehman Brothers' former clients who receive SIPA priority repayments. A number of institutional forex traders, such as Moore Capital, have appealed but considering the position of the CFTC it is unlikely any of them will eventually succeed in bypassing the line of creditors.