FIA releases customer fund protection recommendations

Washington, D.C.—Feb. 29, 2012—The Futures Industry Association released two documents today to address issues related to the bankruptcy of MF Global. One of the documents contains initial recommendations for enhancing the protection of customer funds; the other is designed to provide customers with essential information about the rules and regulations relating to customer fund protections.

The release of these documents is an initial step in fulfilling the mission of the Futures Market Financial Integrity Task Force that the FIA established in January 2012. The FIA task force emphasizes that these documents are works in progress and open for discussion with all other interested parties. Both documents will be posted on the FIA website. The FIA task force will continue its analysis of the existing regulatory structure and its review of FCM policies and procedures.

“The FIA task force has drafted these documents as part of our effort to address the very serious issues raised by the collapse of MF Global,” said John Damgard, president of the FIA. “These are practical and meaningful recommendations that regulators and FCMs can implement to further protect users of the listed derivatives markets.”

The Initial Recommendations for Customer Funds Protection was prepared by members of the FIA Financial Management Committee. The document is designed to enhance financial recordkeeping and reporting requirements, provide greater transparency to regulators regarding the investment of customer funds, and establish industry-wide internal control standards for the customer funds segregation process.

The specific recommendations include:

  • establishing a reporting requirement for the daily computation made by each FCM of customer funds on deposit in segregated accounts;
  • requiring FCMs to file twice-monthly reports on the investment of customer funds;
  • requiring FCMs to assure the appropriate separation of duties among individuals working at FCMs who are responsible for compliance with the rules protecting customer funds; and
  • requiring FCMs to document their policies and procedures in several critical areas, including the valuation of securities held in segregated accounts, the selection of banks, custodians and other depositories for customer funds, and the maintenance and withdrawal of “residual interest,” which consists of the excess funds deposited by firms in the customer segregated accounts.

The Protection of Customer Funds: Frequently Asked Questions was prepared by members of the FIA Law and Compliance Division. It is designed to be used by FCMs to provide their customers with increased disclosure with respect to the relevant provisions of the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission. The document contains 30 questions and answers addressing the basics of segregation, collateral management and investments, capital requirements and other issues for FCMs and joint FCM/broker-dealers, and clearinghouse guarantee funds.

http://www.futuresindustry.org/downloads/Initial_Recommendations_for_Customer_Funds_Protection.pdf

http://www.futuresindustry.org/downloads/Protection_of_Customer_Funds_FAQ.PDF

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