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

Dan Roth: Working on rebuilding confidence

Q & A

FM: The concept of self-regulation has come into question since both these failures occurred. What services does the NFA provide as a SRO — both in terms of education and enforcement — that would be more difficult for the CFTC (or some other more centralized regulator) to deliver?

DR: It certainly would be resource-intensive for anyone to duplicate what we are doing. Just this week we have done workshops for firms that will now be required to be registered as CPOs in New York, Chicago, San Francisco and London. We did a workshop for swap intermediaries, CPOs [commodity trading advisors]…that will have to become registered as result of their swap activities. We have done webinars for those categories explaining the registration process; we have had hundreds of firms participate in those. We will have in the next eight weeks a number of workshops for swap dealer firms to familiarize them with the registration process. Those are all different types of educational programs we have put on for members or perspective members to try and get them ready for these changes. That would be difficult for the CFTC to try and duplicate. It is easier for an SRO to work through that process than a government agency.

When you work for a self-regulatory body you have two jobs: For the overwhelming majority of members that want to comply, make sure they understand what they have to do and how they can do it; and two, for those members who don’t want to comply, your job is to identify them as quickly as you can and get rid of them. The former job is more in the nature of a membership organization than a government regulator.

FM: Have you added staff?

DR: Our budget for this fiscal year calls for a 27% increase. A lot of that is driven by swaps. You can’t build these systems without additional IS resources. Our current staffing levels are at 320.

FM: We speak with CTAs all the time who introduce customers, who are pretty unfamiliar with futures, to the industry. Up until a year ago, they would hold out the regulatory structure of the industry — customer segregated funds in particular — as a selling point.  What can you say to those investors weary of what has occurred in the last year?

DR: The two things that I can tell them [are] by all means, [perform] due diligence on the FCM [with whom you are choosing to do business. We are putting as much information on our web site as we can to help them with that due diligence process to try and make the FCMs’ financial condition as transparent as possible. Number two, I would remind them that as we move toward the daily confirmation of customer segregation balances from all types of depositories [it] will be a tremendous enhancement to guard against any potential misuse of customer funds by an FCM. 

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