Tag Archives: futures SRO

Major Futures Industry SROs Call for More FCM Reporting

The NFA released an announcement that the major SROs for the futures industry – the CME, NFA, ICE, KCBOT, and the Minneapolis Grain Exchange – have created a series of recommendations on ways to increase the security of customer deposits with FCMs. I

t is no surprise that the proposed safeguards all involve more oversight by the SROs.

The recommendations can be summed up as follows:

  1. Require FCMs to file daily segregation reports
  2. Require FCMs to file bimonthly reports detailing how segregated funds are invested and where those assets are custodialized
  3. Require more frequent unannounced audits/inspections of the FCM
  4. Require a principal of the FCM to approve a disbursement from the segregated accounts which is in excess of 25% of those accounts

As we discussed in a piece earlier about the changing managed futures regulations, there will be various proposals over the next several months detailing how the futures industry can be better regulated. Many of these proposals mean that FCMs will need to increase compliance and oversight. We believe that a number of the proposals below (and a number which have been suggested by other groups) are reasonable and would increase managed futures customer protection. The question, as with any increase in regulation, is whether the costs of implementing and maintaing these compliance programs outweigh any benefits to customers. We will certainly hear more on these issues in the near term…


Futures industry SRO committee announces initial recommendations to strengthen current safeguards for customer segregated funds

March 12, Chicago – A special committee composed of representatives from the futures industry’s self-regulatory organizations (SRO) has proposed a series of initial recommendations for changes to SRO rules and regulatory practices designed to strengthen current safeguards for customer segregated and secured funds held at the firm level in light of the MF Global bankruptcy.

The four recommendations include:

• Requiring all Futures Commission Merchants (FCM) to file daily segregation and secured reports. This will provide SROs with an additional means of monitoring firm compliance with segregation and secured requirements and a risk management tool to track trends or fluctuations in the amount of customer funds firms are holding and the amount of excess segregated and secured funds maintained by the firms.

• Requiring all FCMs to file Segregation Investment Detail Reports, reflecting how customer segregated and secured funds are invested and where those funds are held. These reports would be filed bimonthly and will enhance monitoring of how FCMs are investing customer segregated and secured funds.

• Performing more frequent periodic spot checks to monitor FCM compliance with segregation and secured requirements. FCMs are audited each year by both their DSRO and their outside accountant.

• Requiring a principal of the FCM to approve any disbursement of customer segregated and secured funds not made for the benefit of customers and that exceed 25% of the firm’s excess segregated or secured funds. The firm would also be required to provide immediate notice to its SROs.

Dan Roth, president of NFA, stated that “The committee believes that these recommendations will provide regulators with better tools to monitor firms for compliance with segregation and secured requirements and strengthen the industry’s customer protection regime. These are our initial recommendations. We will continue to work with the CFTC and the industry as we consider additional improvements.”

The special committee, formed in January 2012 in response to the MF Global bankruptcy, includes representatives from CME Group, NFA, InterContinental Exchange, Kansas City Board of Trade and the Minneapolis Grain Exchange.


Cole-Frieman & Mallon LLP provides legal services to the managed futures industry. Bart Mallon can be reached directly at 415-868-5345.