Segregated funds protections proposed by SROs

Too late for PFG...

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The following is from the National Futures Association...

July 17, Chicago - A special committee composed of representatives from the futures industry's self-regulatory organizations (SRO) has proposed additional requirements to SRO rules and regulatory practices designed to strengthen safeguards for customer segregated and secured funds held at the firm. The special committee, formed in January 2012, includes representatives from CME Group, NFA, InterContinental Exchange, Kansas City Board of Trade and the Minneapolis Grain Exchange.

The SRO Committee unanimously agreed to immediately begin the process of confirming the balances of customer segregated bank accounts for all FCMs using a web-based electronic confirmation process. Additionally, the SROs will develop rules to require all FCMs to provide their DSRO with direct online access to confirm segregated and secured funds balances at the banks which hold the FCM's customer segregated and secured funds. Any bank depository that fails to provide electronic online access will not be considered an acceptable depository for holding customer segregated and secured funds.

In May 2012, the committee made initial recommendations to current rules and practices that, among other things, would require all FCMs to file daily segregation and secured reports, as well as file bimonthly Segregation Investment Detail Reports, reflecting how customer segregated and secured funds are invested and where those funds are held. In addition, the recommendations included requiring a principal of the FCM to approve any disbursement of customer segregated and secured funds not made for the benefit of customers and that exceed 25% of the firm's excess segregated or secured funds. The firm would also be required to provide immediate notice to its SRO.

The recommendations were included in a new NFA Financial Requirements Section 16 and accompanying Interpretive Notice, which were approved by the CFTC on July 13, 2012, and will become effective on September 1.

CME also implemented changes in reporting requirements beginning in May 2012, which are described in detail in April and June audit bulletins on the company's website.

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