The CME Group released the following notice on April 2, 2012:
To: Chief Executive Officer, Chief Compliance Officer, Chief Financial Officer
From: Audit Department, Clearing House Division
Notice Date: April 02, 2012
Effective Date:May 01, 2012
As a leader in the industry, and in conjunction with recommendations we have developed with several industry groups to further safeguard customer funds at the firm level, CME is adopting several enhancements to its reporting requirements. Customer segregation is the cornerstone of the futures industry, and it is critical to ensure the protections afforded under segregation are as strong as they can be for our market participants. In conjunction with recommendations already put forward by National Futures Association, Futures Industry Association and others, the following enhancements are being adopted.
Effective May 1, 2012 CME is requiring all FCM clearing members:
To file daily segregated, secured 30.7 and sequestered statements, as applicable, through WinJammer™ by 12:00 noon on the following business day. These daily statements must be electronically submitted and signed off by the firm’s Chief Executive Officer, Chief Financial Officer or their designated representative as allowed under self-regulatory organization (“SRO”) rules and as authorized on the “User Identification Request Form”. The daily segregated, secured 30.7 and sequestered statement filings will be identified in WinJammer under two new reports: “Daily Seg 1-FR” and “Daily Seg FOCUS II” for FCMs and dually registered FCMs/Broker Dealers respectively. The first required filing as of May 1, 2012 will be due on May 2, 2012 by 12:00 noon.
CME is adopting these additional reporting requirements under CME, CBOT and NYMEX Rule 970.D. Financial Requirements while specific rules requiring the above are finalized.
In coordination with the Joint Audit Committee, CME will be performing limited reviews of customer segregated, secured 30.7 and sequestered statements on a surprise basis outside of the regular risk based examinations. These reviews will be performed in accordance with a review program adopted by the Joint Audit Committee and filed with the CFTC.
CME continues to work with the industry to adopt further improvements to customer protections. Included in these additional enhancements will be requirements that:
- All disbursements of customer segregated, secured 30.7 or sequestered funds that are not made for the benefit of customers of the respective customer origin and that exceed 25% of the excess segregated, secured 30.7 or sequestered funds as applicable must be pre-approved in writing by the FCM’s Chief Executive Officer, Chief Financial Officer or designated principal as allowed under SRO rules. In determining if the 25% level has been exceeded, all such disbursements not made for the benefit of customers by customer origin should be aggregated and compared to the most current daily segregated, secured 30.7 and sequestered calculations as applicable. Further, CME must be immediately notified of such disbursements through WinJammer notification filings including a description of the nature of the disbursement(s) and confirmation of pre-approval. This requirement is being adopted in conjunction with other SROs and will be effective once proposed rule changes are completed and have received regulatory approvals. Additional information and details will be provided once rules are in place and an effective date has been determined.
- FCM clearing members will be required to file bi-monthly Segregated Investment Detail Reports (“SIDRs”) reflecting how customer segregated, secured 30.7 and sequestered funds are invested and where those funds are held. The SIDRs will be filed electronically through WinJammer as of the 15th of the month and last day of the month. This reporting requirement is expected to become effective July 1, 2012 – additional information and details will be forthcoming.
FCMs are expected to have sufficient accounting systems, internal controls and procedures in place for safeguarding customer and firm assets to ensure compliance with all segregation, secured 30.7 and sequestered rules and regulations at all times, including maintaining excess funds on an intra-day basis. We continue to work with the industry in determining best practices regarding internal controls and procedures over customer assets.
If you have any questions, please call the Audit Department at (312) 930-3230.