(The following is a reformatted version of a press release
issued by The Commodity Futures Trading Commission and received
via electronic mail. The release was confirmed by the sender.)
January 25, 2012
CFTC Releases Results of Limited Reviews of Futures Commission
CFTC did not find any material breaches of customer funds
protection requirements during the spot check
Washington, DC - The Commodity Futures Trading Commission (CFTC
or Commission) today released findings of limited reviews of
futures commission merchants (FCMs) to assess compliance with
requirements to segregate customer funds pursuant to Section 4d
of the Commodity Exchange Act (ACT). The limited reviews also
covered the FCMs’ obligation to set aside in secured accounts
funds deposited by customers for trading on foreign boards of
trade under Section 4(b) of the Act and Part 30 of the
Commission’s regulations. As of the review date for each FCM,
all of the FCMs were in compliance with the segregation or Part
30 secured amount requirements.
Last fall, after the collapse of MF Global, Inc., the Commission
initiated a coordinated review with the CME and NFA of all FCMs
that carried customer funds to assess compliance with the
protection of customer funds and Commission regulations. There
were 120 FCMs registered with the Commission as of October 31,
2011. Seventy of the FCMs held Section 4d segregated funds or
Part 30 secured amount funds, and were subject to the limited
reviews. The remaining 50 FCMs did not carry customer
segregated or Part 30 secured funds, and were not subject to the
In order to obtain an immediate “snapshot” of each FCM’s
compliance with the segregation and Part 30 secured
requirements, staff of the CFTC’s Division of Swap Dealer and
Intermediary Oversight (DSIO), Chicago Mercantile Exchange
(CME), and National Futures Association (NFA) did not conduct an
audit, which would entail a more detained and lengthy
examination of the FCMs. The limited reviews relied to a great
extent on the records and third-party source documents
maintained at the FCMs. Staff did not confirm balances directly
with depositories or other entities holding customer funds.
However, several FCMs reviewed by the CME were subject to more
detailed testing procedures, as the special limited reviews were
incorporated into CME’s routine FCM examinations already in
process during November and December 2011.
The Commission directed CFTC staff to conduct limited reviews of
14 of the largest FCMs to determine whether the entities
maintained sufficient assets in segregated and Part 30 accounts
to meet their regulatory obligation to futures customers. The
CME and NFA conducted similar reviews of the remaining 56 FCMs.
The limited reviews of the 70 FCMs found that, as of the review
date, each firm maintained assets in Section 4d segregated
accounts in excess of the net liquidating equities of each of
its customers as required under Section 4d of the Act and
Commission regulations. The limited reviews further found that,
as of the review date, each FCM maintained assets in Part 30
secured accounts in excess of the aggregate margin required on
all customers’ open futures positions, plus any unrealized gains
and less any unrealized losses on the open positions, as
required by Commission Regulation 30.7.
Additional findings are as follows:
- The FCMs held a total of approximately $166 billion in
segregated accounts, which was approximately #13 billion (or 9%)
in excess of the $153 billion owed to customers. The FCMs also
held approximately $48 billion in Part 30 secured accounts,
which was approximately $7 billion (or 17%) in excess of the
Part 30 secured amount obligation.
- $137 billion of the total segregated funds of $166
billion (or 82.5%) and $42 billion of the total Part 30 secured
funds of $48 billion (or 87.5%) was concentrated in the 14 FCMs
reviewed by Commission staff.
- The FCMs posted approximately $74 billion of
segregated funds with Commission-designated derivatives clearing
organizations. This represents 45% of the total segregated
balance of $166 billion.
- The FCMs held approximately $33 billion of the total
Part 30 secured funds of $48 billion (or 68%) deposited by
customers for trading on foreign futures and options markets at
affiliated banks and affiliated foreign brokers. FCMs also
invested approximately $3 billion of Part 30 secured funds in
internal reverse repurchase transactions and reverse repurchase
transactions with affiliated entities.
- The FCMs held approximately $30 billion of Section 4d
segregated funds (or 18% of the total segregated funds of $166
billion) with affiliated banks and/or custodian entities. FCMs
also invested approximately $12 billion of Section 4d segregated
funds in internal reverse repurchase transactions and reverse
repurchase transactions with affiliated entities.
To determine whether FCMs maintained sufficient assets in
segregated accounts to meet their obligations to all futures
customers, the Commission directed the DSIO to conduct limited
reviews of 14 of the largest FCMs, and to coordinate with the
CME and NFA the review of 56 other FCMs carrying customer funds.
The principal goal of the limited reviews was to obtain an
appropriate level of assurance that FCMs holding customer funds
were not in violation of the segregation and Part 30 secured
amount requirements as of the review date.
DSIO staff conducted an onsite limited review of 14 FCMs. DSIO
staff obtained from each FCM a detailed listing of assets held
in segregated and Part 30 secured accounts as reflected in the
firm’s books and records. The listing of assets was compared to
independent third-party source documents and reconciliations
maintained at the FCM’s offices supporting the asset balances.
Staff also reviewed the third-party account documentation to
determine that the funds were maintained in properly titled
segregated or secured accounts, as appropriate. In addition,
staff reviewed each FCM’s reported segregation and Part 30
secured amount liabilities and reviewed underlying firm records
to ensure that the records reflected such liabilities. The
staffs of the CME and NFA performed comparable review
R. David Gary
Office of Public Affairs
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