PFGBest mess raises systemic issues for futures industry

In compliance

In a Jan. 25 statement, the Commission noted, “The limited reviews of the 70 FCMs found that, as of the review date, each firm maintained assets in Section 4d segregated accounts in excess of the net liquidating equities of each of its customers as required under Section 4d of the Act and Commission regulations. The limited reviews further found that, as of the review date, each FCM maintained assets in Part 30 secured accounts in excess of the aggregate margin required.”

John Roe co-founder of the Commodity Customer Coalition said “here we go again.” In an e-mailed statement Roe says, “Yesterday’s revelations regarding PFGBest should dispel the notion that serious reforms are not merited in the wake of MF Global’s collapse.  Since the year 2000, four of the 15 largest bankruptcies in U.S. history included firms who had FCM operations (Enron, Refco, Lehman, MF Global).  The list would be larger had Merrill Lynch and Bear Stearns not been forcibly acquired by other firms. Something is clearly seriously wrong with this industry and the regulatory scheme that governs it.”

Roe also noted the FCM review. “When the primary regulators in charge of this industry can get it this wrong this quickly, the regulations protecting customers are a paper tiger.  Heads should be rolling over this,” Roe says.

The CFTC complaint further alleges that defendants made false statements in filings required by the Commission regarding funds held in segregation for customers trading on U.S. Exchanges. 

CTA Marc Levitt says, "You got to wonder how asleep at the switch the [designated self-regulatory organization] for PFG was," referring to the NFA. FCMs file customer segregation reports daily and are typically audited at least once a year. Add to this the special review performed by regulators on the top 70 FCMs after the MF Global shortfall in customer segregated funds was found and you can understand the frustration of futures traders.

Jeff Greenblatt, a futures trader and director of Lucas Wave International, says, “Why would anybody trust any broker anymore? Are they just going to allow these people to rape and pillage the industry to the bone until nothing is left? How can this industry recover from MF Global when the trend continues?”

One Futures reader echoed Greenblatt's sentiment. "I expected a domino effect [after MF Global], and now more are starting to fall," he said in an emailed note. "The futures industry is going to contract in size no matter what, but they are not getting my funds to play the fraud games for personal gains."

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