Futures regulators, including NFA and CME, are conducting a new industrywide review of brokers’ bank accounts to ensure the integrity of customer funds, a person briefed on the matter said yesterday. The person spoke on condition of anonymity because the review hasn’t been publicly announced. Christopher K. Hehmeyer, NFA’s chairman, has requested that the Jenner & Block law firm be retained to conduct an internal review of auditing procedures and how they were used to oversee Peregrine, the regulator said in an e-mail statement yesterday.
Public records indicate Peregrine had at least one previous violation related to treatment of customer funds. In 1996, Peregrine paid $75,000 to resolve NFA claims that the company engaged in false and deceptive promotion and failed to accurately calculate segregated funds, according to records posted on NFA’s website.
The CFTC gave itself a grade of 100 percent for its direct examinations of futures brokers in 2011, according to a performance analysis by the agency issued on Feb. 13.
After the MF Global collapse, CFTC led a review with NFA and CME of the 70 futures brokers that hold customer funds, including Peregrine.
On Jan. 25, the CFTC announced that customer funds at the brokers were properly segregated. The agency said the review was a “snapshot” of the industry’s compliance with regulations and didn’t involve a “lengthy examination” of the brokers, according to a statement from the CFTC. The review relied on brokers’ records and didn’t involve regulatory officials independently confirming balances of customer funds at other entities.
“We are appalled by the recent violations of customer segregated funds that have shaken the very core of our industry,” CME Group said in a July 13 statement. “Without question, the current system in which customer funds are held at the firm level must be reevaluated.”
The CFTC’s five commissioners are considering a draft of new regulations to increase customer protection in the futures industry, Gensler told reporters after the hearing. The draft includes allowing regulators to have electronic access to bank accounts and custodial accounts for futures commission merchants, he said. There isn’t a date set to vote on the proposal.
--Editors: Maura Reynolds, Gregory Mott