In part a reaction to allegations of fraud and the misuse of client funds at MF Global, the National Futures Association, the self-regulatory organization for the U.S. futures industry, has proposed new rules and stronger regulation regarding the treatment and monitoring of customer segregated funds held by futures commission merchants (FCMs).
The proposed new requirements, approved by NFA's Board of directors earlier this month, have now been submitted to the Commodity Futures Trading Commission for approval. Major provisions of the new requirements include:
- All FCMs must have written policies and procedures regarding the maintenance of the firm's residual interest in its customer segregated funds. These policies and procedures must target an amount (either by percentage or dollars) that the FCM seeks to maintain as its residual interest in those accounts.
- No FCM may withdraw, transfer, or otherwise disburse funds from any customer segregated funds account exceeding 25 percent of the FCM's residual interest in customer segregated funds unless the firm's CEO, CFO, or other defined principal pre-approves the transaction in writing. In addition, the FCM must immediately file a written notice with NFA that must include the following: notification of the disbursement, description of the reason for the disbursement; the amounts and recipients of the disbursement, confirmation that a qualified individual pre-approved in writing the disbursement and the current estimate of the remaining total residual interest in the customer-segregated funds accounts.
- All FCMs must provide NFA with financial and operational information on a monthly or semi-monthly basis. NFA will subsequently make some of this information publicly available on its Website in the future.
All of these new requirements also apply to foreign futures and options for customer-secured amount funds accounts.
The complete text of the Rule Submission Letter is available online.