NFA's Dan Roth talks PFGBest fraud at House hearing

We have also agreed with the CME to perform an immediate confirmation of all customer segregated bank accounts for all of our FCM Members using the

e-confirmation process I referred to earlier.  The completion of this work within the next week or so should help ensure that another Peregrine is not lurking in the industry. 

All of this is in addition to the rule changes already approved by NFA's Board in May and just recently approved by the CFTC.  Those changes include rules requiring that:

  • All FCMs must report certain information concerning the FCM's financial condition that will then be made available to the public on NFA's web site.  This information includes the firm's capital requirements; its excess capital; the amount of customer segregated funds held by the firm; the amount of excess segregated funds maintained by the firm; whether the firm engages in proprietary trading, once that term is defined in the context of the Volker rule; and whether any custodial bank holding customer funds is an affiliate of the FCM.
  • All FCMs must report to NFA detailed information on how customer segregated funds are invested, and that information will also be made available to the public through NFA's web site.
  • If any FCM reduces its level of excess segregated funds by 25% in any one day by making disbursements that are not for the benefit of customers, a financial principal of the firm must approve the disbursement, must immediately notify the firm's DSRO, and must certify that the firm remains in compliance with all segregation requirements.

 All of these rule changes promote greater transparency for both customers and regulators and should help prevent a recurrence of the type of problems we saw at MF Global.  These rule changes, however, are only the beginning.  The MF Global and Peregrine customer losses are a painful reminder that we must continuously improve our surveillance, audit and fraud detection techniques to keep pace with changing technology and an ever-more-complicated financial marketplace.

Mr. Chairman, for so long as there have been financial markets, there has been fraudsters who attempt to steal other people's money, and no regulator can provide assurance that fraud can be completely eliminated.  But this is the second time in nine months that customers have suffered losses due to misconduct or fraud on the part of an FCM, and when customers suffer those devastating losses, it is also devastating for the industry.  We know that we can never completely eliminate fraud, but we must continue to adopt rules and surveillance techniques to try to eliminate the possibility that this could happen again.  The steps we took at our May Board meeting and the proposed steps outlined above are a start in that process.  We look forward to working with Congress, the Commission and the industry to achieve that goal and no ideas should be off the table in this process.

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