From the November 01, 2012 issue of Futures Magazine • Subscribe!

Dan Roth: Working on rebuilding confidence

Q & A

FM: What did NFA learn from those failures to identify what was going on?

DR: Post MF Global we recognized that we have to have greater use of technology as a means of monitoring firms’ compliance with segregation requirements, and we were moving in that direction. Peregrine just upped the stakes. It wasn’t just the May incident by itself, it was MF Global and Peregrine together, which moved us to having daily confirmation of all seg balances.

FM: While having both cases occur in one year has been embarrassing for regulators, they are distinct. Describe the differences between the two.

DR: Both situations involved the misuse of customer segregated funds by an FCM. The nature of the misuse is different in that one involved outright theft; the other one involved a theft as well, but a theft to fund the firm’s ongoing operations and investments. One involves excess segregated funds where the firm is drawing down its excess segregated funds and in the process misused customer funds; the other is more of a blatant outright theft.

FM: Are you frustrated with the investigation of MF Global and the fact that there have been no charges filed?

DR: I have been around for a long time and I have seen numerous instances where the complexity of a criminal investigation and all the demands on the resources of the Federal prosecutors very often result in criminal prosecutions not being brought until the eve of the expiration of the statute of limitations. They are nowhere near that.

FM: There has been a lot of debate regarding creating an insurance fund to protect segregated customer accounts. IN 1985 the NFA studied this. Are you reexamining this? Do you think an insurance fund is necessary?

DR: That question has to be reexamined. The 1985 study examined various methodologies already in place to safeguard customer segregated funds and talked about various possibilities including insurance, but it did not attempt to calculate the actual cost of implementing an insurance program. You cannot intelligently discuss the issue of whether there should be some form of an insurance program without having precise data about what the cost would be. You can’t talk about insurance in the abstract; you have to know what you are buying and what you are paying.

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