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MF Global: Regulators Pushed Us Off Cliff

NEW YORK ( TheStreet) -- Watching MF Global's (MF) speedy implosion in recent days, one of the first questions on many people's minds was: Where were the regulators? The answer appears to be: Are you kidding? They were all over us. They pushed us off the cliff!

In a bankruptcy court filing Monday, "MF Global said regulators were 'dissatisfied' with a September securities filing by the company where it disclosed new capital requirements for its European bet," according to The Wall Street Journal. Regulators then "demanded that MF Holdings announce" that it had a combined $6.3 billion in exposure to the debt of five different European countries.

It was this disclosure that prompted a downgrade of MF Global, causing its shares to fall 66% over four days last week, and ultimately led to its bankruptcy filing on Monday.

The primary regulators for MF Global were the Commodity Futures Trading Commission, the Securities and Exchange Commission and the Financial Industry Regulatory Authority, according to the Journal . Federal Reserve Chairman Ben Bernanke said Wednesday that the Fed did not have oversight responsibility for MF Global because it was too small and wasn't a bank holding company, the newspaper reported.

Had the Fed been MF Global's regulator, it seems unlikely it would have pushed for greater disclosure at the risk of rattling the markets. The Fed sees its mandate as preserving the safety and soundness of the banking system.

The SEC, on the other hand, has a mandate of investor protection, and so traditionally has favored greater disclosure. In the years leading up to the crisis, however, the SEC's traditional role appeared to have lapsed as the agency ignored repeated warnings about the Madoff Ponzi scheme, and the commission was nowhere to be found in the months leading up to the implosions of Bear Stearns and Lehman Brothers, two firms it was supposed to be regulating.

Now, however, the SEC appears to be playing catch-up. Sensitive to criticisms that it has been a do-nothing agency, it now wants to show how tough it is. Was it too tough when it came to MF Global? After all, the bets that freaked out the market and caused MF Global's shares to plunge were barely underwater at the time MF Global filed for bankruptcy. Given what happened in the years leading up to 2008, a little overzeal on the part of regulators doesn't seem like such a bad thing, but MF Global's failure is sure to liven up the debate.

-- Written by Dan Freed in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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