CFTC gives passing grades to 14 FCMs
26 January 2012 Washington
Image: Shutterstock
The Commodity Futures Trading Commission (CFTC) found the top 14 futures commission merchants (FCMs) compliant with requirements to segregate customer funds. The limited review covered this and the FCMs' obligation to set aside in secured accounts funds deposited by customers for trading on foreign boards of trade.
Last fall, after the collapse of MF Global, the CFTC initiated a coordinated review with the Chicago Mercantile Exchange (CME) and National Futures Association (NFA) of all FCMs that carried customer funds to assess compliance with the protection of customer funds and CFTC regulations.
In order to obtain an immediate “snapshot” of each FCM’s compliance with regulations, staff of the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO), CME, and NFA did not conduct an audit, which would entail a more detained and lengthy examination of the FCMs. The limited reviews relied to a great extent on the records and third-party source documents maintained at the FCMs.
Staff did not confirm balances directly with depositories or other entities holding customer funds. However, several FCMs reviewed by the CME were subject to more detailed testing procedures, as the special limited reviews were incorporated into CME’s routine FCM examinations already in process during November and December 2011.
The Commission directed CFTC staff to conduct limited reviews of 14 of the largest FCMs to determine whether the entities maintained sufficient assets in segregated and secured accounts to meet their regulatory obligation to futures customers. The CME and NFA conducted similar reviews of the remaining 56 FCMs.
The limited reviews of the 70 FCMs found that, as of the review date, each firm maintained assets in the relevant segregated accounts in excess of the net liquidating equities of each of its customers as required under regulations. The limited reviews further found that, as of the review date, each FCM maintained assets in relevant secured accounts in excess of the aggregate margin required on all customers’ open futures positions, plus any unrealised gains and less any unrealised losses on the open positions, as required by regulations.
Other findings showed that the FCMs held a total of approximately $166 billion in segregated accounts, which was approximately $13 billion (or 9 per cent) in excess of the $153 billion owed to customers. The FCMs also held approximately $48 billion in relevant secured accounts, which was approximately $7 billion (or 17 per cent) in excess of their obligation.
Last fall, after the collapse of MF Global, the CFTC initiated a coordinated review with the Chicago Mercantile Exchange (CME) and National Futures Association (NFA) of all FCMs that carried customer funds to assess compliance with the protection of customer funds and CFTC regulations.
In order to obtain an immediate “snapshot” of each FCM’s compliance with regulations, staff of the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO), CME, and NFA did not conduct an audit, which would entail a more detained and lengthy examination of the FCMs. The limited reviews relied to a great extent on the records and third-party source documents maintained at the FCMs.
Staff did not confirm balances directly with depositories or other entities holding customer funds. However, several FCMs reviewed by the CME were subject to more detailed testing procedures, as the special limited reviews were incorporated into CME’s routine FCM examinations already in process during November and December 2011.
The Commission directed CFTC staff to conduct limited reviews of 14 of the largest FCMs to determine whether the entities maintained sufficient assets in segregated and secured accounts to meet their regulatory obligation to futures customers. The CME and NFA conducted similar reviews of the remaining 56 FCMs.
The limited reviews of the 70 FCMs found that, as of the review date, each firm maintained assets in the relevant segregated accounts in excess of the net liquidating equities of each of its customers as required under regulations. The limited reviews further found that, as of the review date, each FCM maintained assets in relevant secured accounts in excess of the aggregate margin required on all customers’ open futures positions, plus any unrealised gains and less any unrealised losses on the open positions, as required by regulations.
Other findings showed that the FCMs held a total of approximately $166 billion in segregated accounts, which was approximately $13 billion (or 9 per cent) in excess of the $153 billion owed to customers. The FCMs also held approximately $48 billion in relevant secured accounts, which was approximately $7 billion (or 17 per cent) in excess of their obligation.
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