How safe are your funds?

In the wake of customer funds missing at MF Global and apparent misappropriation and fraud at PFGBest, the futures industry has felt a one-two punch to the supposed bulwark surrounding customer funds. That was what made the futures industry stand apart — brokerages could fail, but the segregation of customer funds would ensure client funds were safe. With two crises in less than a year, that air of superiority definitely has gone out of the sails. So what is a trader to do?

The New York Institute of Finance (NYIF) hosted a virtual class this week to address that issue. The class, dubbed “Futures Trading and the Protection (and Preservation) of Customer Funds,” sought to peel back the curtain surrounding futures regulations and show just how safe (or not) customer funds really are.

Beginning with an explanation of the three-tiered regulatory structure the futures industry currently has, instructor Larry Schneider explained how we got to the point we now are and how legislation has shaped our regulatory structure. At one point, Schneider illustrated the entire regulatory regime with the below flow chart as to who regulates who.

From this basis, Schneider traced the actual route a customer’s funds may travel as he opens an account at an Introducing Broker (IB). With client’s money traveling between an IB, a non-clearing futures commission merchant (FCM), a clearing FCM and potentially another clearing FCM with memberships at other exchanges, it can beg the question, “Who is your broker?”

Page 1 of 2 >>
Comments
comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome