In the discussion of what reforms are necessary to protect futures industry participants moving forward, we have advocated for passing regulations which unequivocally place segregated account clients in front of all creditors in a bankruptcy. As we’ve written many a time:

In our minds, segregated account holders should absolutely come first in the claims process. Unlike the creditors and bond holders, who knowingly accepted the risk of default when they handed over their money, MFGlobal clients were paying MF Global to hold their funds- not lose them. With this in mind, we believe that the law must designate segregated accounts as the primary creditor if an FCM goes belly up, ensuring that, should there be a shortfall in client segregated funds, available assets of the bankrupt FCM will be tapped to make those accounts whole before any other creditor gets their day in court.

Some have argued that the law already fulfills this requirement, but a recent court decision on the subject only reinforces our call for the reform. Via Reuters:

A federal appeals court on Thursday upheld a ruling that puts Bank of New York Mellon ahead of former customers of Sentinel in the line of those seeking the return of money lost in the 2007 failure of the suburban Chicago-based futures broker.

The appeals court affirmed an earlier district court ruling that the bank had a “secured position” on a $312 million loan it gave to Sentinel, which turned out to have been secured by customer money.

Futures brokers are required to keep customers’ funds in dedicated accounts to protect them from being used for anything other than client business.

However, Thursday’s ruling suggests that brokerages can use customer funds to pay off other creditors, Sentinel trustee Fred Grede told Reuters.

So, all you powers that be- are we ready to actually move on some  of these reforms, instead of just talking about them?