JLN Options: CFTC Proposal Poses "Monumental" Challenge to FCMs

Feb 13, 2013

CFTC Proposal Poses “Monumental” Challenge to FCMs
By John Lothian

Changes to the way customer funds are held and accounted for by futures commission merchants (FCMs) were inevitable after the bankruptcies of MF Global and Peregrine Financial Group. But it is pressure from buy-side market participants and their allies in Congress who are pushing for regulatory changes that could change the face of the futures business.

At last week’s CFTC Roundtable, the fourth panel of the day titled “Enhancing Protections Afforded Customers and Customer Funds Held by Futures Commission Merchants and Derivatives Clearing Organization,” highlighted the challenges and potential consequences to the industry. CFTC plans call for FCMs to hold more “residual interest” capital to cover all customer margin calls to reduce customer-to-customer default risk.

Because the roundtable was under-reported by the big news services, we are bringing you this John Lothian News Special Report based on the CFTC’s video of the meeting. Watch the JLN video:

SCFTC Proposal Poses Monumental Challenge to FCMs

The deadline for public comment on the proposed rulemaking on Enhancing Protections Afforded Customers and Funds Deposited by Customers is February 15, 2013. Members of the public wishing to submit comments on the roundtable and proposed rulemaking may do so via:

  • Paper submission to Melissa Jurgens, Secretary, Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, Washington, DC 20581; or
  • Electronic submission by visiting http://comments.cftc.gov and following the instructions for submitting comments through the CFTC’s website.

All comments must be identified by RIN number: 3038-AD88. All submissions provided to the CFTC will be published on the Commission’s website, without review and without removal of personally identifying information.

New Restoring Customer Confidence Video

The eleventh video in our Restoring Customer Confidence series deals with daily reporting of customer funds. Each week we will post a new idea answering the question – how do you restore customer confidence and bring traders back?

Restoring Customer Confidence More ideas»
Daily Reports: Tell Us Where The Money Is

Daily Reports: Tell Us Where The Money Is

In the months and days since MF Global’s collapse and the Peregrine Financial Group’s fraud, some have argued simply for more transparency from futures commission merchants (FCMs). Scott Gordon, chairman and CEO of Rosenthal Collins Group, said his firm publicly discloses how customer funds are being invested and held by the firm. In Rosenthal Collins’ case, the firm reports its cash deposits held at US banks, funds held in US Treasury securities, as well as its how much is being held by clearing houses and clearing brokers and US banks. This type of transparency could be the difference in building customer trust or losing it.

Watch the video »

This video is sponsored by:


About the Restoring Customer Confidence video series
In the aftermath of the MF Global collapse, fraud at Peregrine Financial Group and high profile high-frequency trading shocks, John Lothian News asks – how do you restore customer confidence and bring traders back? Previous videos:

Visit the video series page on MarketsWiki.tv over the next several weeks for new ideas and solutions.

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