The NFA just approved a new rule that will improve its supervision of customer segregated accounts at FCM’s. Under the regulation, the NFA will require FCM’s to provide view-only access of account information for segregated funds. Such oversight would have been able to prevent the PFG Best fraud. In that case, the NFA was notified of the dollar amounts being deposited in segregated accounts, but didn’t confirm the actual deposits with the custodian banks until several days later.
With the new rule, the NFA will have real time access to assess if the figures from broker filings are correct. They will also be able to monitor ongoing activity to raise immediate questions directly with the broker in the event of seeing something suspicious.
The NFA also stated that it plans to expand the current rule to include receiving daily reports from FCMs of customer activity which will be used to cross check the deposits of segregated client funds. The rule now goes to the CFTC for approval.
NFA’s Board of Directors approves rule to enhance the customer segregated funds protection regime
August 16, Chicago – The Board of Directors of National Futures Association (NFA) today approved amendments to NFA Financial Requirements that will require each futures commission merchant (FCM) to provide its Designated Self-Regulatory Organization (DSRO) with view-only access via the Internet to account information for each of the FCM’s customer segregated funds account(s) maintained and held at a bank or trust company. The same requirement would apply to the FCM’s customer secured account(s) held for customers trading on foreign futures exchanges.
In addition, the rule states that if a bank or trust company is unable to allow the FCM to provide its DSRO with view-only full access via the Internet, the bank or trust company will not be deemed an acceptable depository to hold customer segregated and secured accounts.
“Under this rule, DSROs will be able to check any customer segregated and secured bank account balance for any FCM any time, without asking the firm or the bank, and compare those balances to the firm’s daily segregation report,” said NFA President Dan Roth. “This is one step in a series of initiatives the Board is working on.”
NFA intends to expand this approach, once it is implemented, to receive daily reports from all depositories for customer segregated and secured accounts, including clearing FCMs. NFA plans to develop a program to compare these balances with those reported by the firms in their daily segregation reports. The system will then generate an immediate alert for any material discrepancies.
The rule was developed by the SRO Committee formed shortly after the demise of MF Global. The committee, comprised of representatives from NFA, CME Group, the InterContinental Exchange, the Minneapolis Grain Exchange and the Kansas City Board of Trade, has made several recommendations for rule changes that have already been approved by NFA’s Board in May and by the CFTC in July.
“Early on in its deliberations, the committee recognized that we need to make better use of technology to monitor firms for compliance with segregation requirements,” said Roth.
The newly approved requirements will now be sent to the CFTC for approval.