NFA has new sheriffs in town

No promise or assurance for future safety will have much meaning or credibility unless the 38,000 [MF Global] customers get 100% of their money back.”

That quote is part of a 14-page memo delivered to the National Futures Association (NFA) Board of Directors by its two newest members, Doug Bry and Ernest Jaffarian. The memo highlights many of the sordid details of the MF Global debacle and includes recommendations but it boils down to one thing, making customers whole.

A point that is often missed in the coverage of MF Global is that this is a crisis in progress and not merely a bad thing that happened that has to be cleared up. Every day that customers are not made whole the damage to the industry accrues. That is the essence of the memo according to Jaffarian.

Bry, President of Denver based Northfield Trading LP and Jaffarian, President and CEO of Warrenville IL. Based Efficient Capital Management, LLC were elected to the NFA board as its CPO/CTA representatives on the basis that the NFA has not been aggressive in protecting former MF Global customers.

The memo states, “While NFA has done a phenomenal job in the 30 years since it was formed to build investor trust and confidence, unfortunately, in the wake of the MFG bankruptcy, with each passing day the trust and confidence of investors and the public that took decades to build is being lost.”

In a conversation after the details of the memo were released Jaffarian stressed that they are not trying to be disruptive. “Our goal is to get the board moving together as a team,” Jaffarian says.

Although they may not be courting controversy, the memo has the potential to ruffle some feathers as it is critical of the response by the self-regulatory organization as well as the role of JP Morgan in the crisis. NFA Chairman Robert Felker is also the chairman of JP Morgan Futures. The memo points out the “numerous actual and potential conflicts” JP Morgan has related to MF global and points out how it has worked against the interests of former MF Global customers.

Bry and Jaffarian say that the NFA is in the best position to ensure MF Global customers are made whole. “We propose that NFA work with the Clearinghouses, Exchanges and FCM’s to find a way for all of us to stand in the shoes of the customers and make them whole.”

They recommend the NFA explore all options to do this including augmenting the NFA fee and using “the proceeds to secure loans sufficient to help cover the MFG shortfall.”

In addition to this, the memo recommends that NFA directly monitor and make transparent all segregated fund investments for all FCM’s; pursue legislative changes to secure the status of seg funds and advocate for customers in the bankruptcy case.

The memo concludes, “While some of us may find ourselves on opposite sides in courtroom battles over MFG’s assets in the months and years to come, as an Association we need to work together and put the interests of the customers first. Doing so will help the customers, restore investor trust and confidence, and serve everybody’s long-term interests. …We have an opportunity to define the moment, restore trust and build a strong foundation for our future. Let’s preserve the truth of the statement: Nobody has ever lost a dollar of segregated funds.”

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