NFA and CME tightening up supervision

Both NFA and CME Group taking a close look at seg funds

Both the National Futures Association (NFA) and CME Group are changing rules regarding how futures commission merchants (FCMs) handle excess funds in customer segregated accounts. Marc Nagel, chief operating officer of Dorman Trading, who serves on the NFA’s FCM advisory committee says the handling of customer segregated funds is the main topic these days at the NFA.

“They are going to require each firm to have a policy on the level of excess segregation. Any withdrawal that exceeds 25% of excess segregation must be approved in writing by a senior officer and a report filed with the NFA and the DSRO (designated self-regulatory organization),” Nagel says.

CME Group is not waiting for those new NFA rules to take effect, which Nagel estimates will happen in June.

On April 2, CME Group sent out a memo to clearing members firms addressed to CEOs, COOs, and CFOs stating that affective May 1 all future commission merchant (FCM) clearing members will be required to file daily segregated, secured 30.7 and sequestered statements through its WinJammer system by noon the following day. The statements must be electronically submitted and signed by the firm’s CEO, CFO or their designated representative.

The memo also states that CME will conduct limited surprises reviews of statements outside their regular risk based examinations as well as implement the 25% NFA rule cited above.

The memo states, “FCMs are expected to have sufficient accounting systems, internal controls and procedures in place for safeguarding customer and firm assets to ensure compliance with all segregation, secured 30.7 and sequestered rules and regulations at all times, including maintaining  excess funds on an intra-day basis.

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