July 13, 2012

CFTC Approves New Financial Rules Submitted by the National Futures Association to Strengthen the Protection of Customer Funds Held by Futures Commission Merchants

Washington, DC – The Commodity Futures Trading Commission (Commission or CFTC) today approved new financial rules submitted by the National Futures Association (NFA) that enhance protections to customer funds held by futures commission merchants (FCMs). The new financial rules are set forth in NFA Financial Requirements Section 16, and an Interpretive Notice entitled “NFA Financial Requirements Section 16 FCM Financial Practices and Excess Segregated Funds/Secured Amount Disbursements.”

The new NFA rules require FCMs to strengthen their controls over the treatment and monitoring of funds held for customers trading on U.S. contract markets (segregated accounts) and for funds held for foreign futures and foreign option customers trading on foreign contract markets (Part 30 secured accounts).

The NFA rules are part of an ongoing response to recent market events, and are the result of coordinated and collaborative efforts by the Commission, self-regulatory organizations and market participants, including the two-day public Roundtable hosted by the CFTC earlier this year. Three areas of reform included in the NFA rules are as follows:

Part 30

• FCMs must hold sufficient funds in Part 30 secured accounts to meet their total obligations to customers trading on foreign markets computed under the net liquidating equity method representing the total account balance owed to customers. FCMs will no longer be allowed to use the alternative method, which had allowed them to hold a lower amount of funds representing the margin on their foreign futures.

Controls on the use of Excess Segregated and Part 30 Secured Customer Funds

• FCMs must maintain written policies and procedures governing the maintenance of excess (i.e., proprietary or residual) funds in customer segregated accounts and Part 30 secured accounts;

• Any withdrawals that are in excess of 25 percent of the excess segregated or Part 30 secured funds that are not for the benefit of customers must be pre-approved in writing by senior management; and

• FCMs must file notice with NFA of any withdrawal of 25 percent or more of the excess segregated or Part 30 secured amount funds that are not for the benefit of customers.

Reporting and Recordkeeping

• FCMs must file on a daily basis with the NFA segregation and Part 30 secured amount computations;
  FCMs must file with the NFA detailed information regarding the depositories holding customer funds and the investments made with customer funds as of the 15th and last business day of each month; and
  FCMs must file with the NFA additional monthly net capital and leverage information.

Section 16 and the Interpretive Notice further establish the process for NFA to initiate a Membership Responsibility Action against an FCM if the NFA believes that the FCM may not have sufficient funds to remain in continual compliance with its obligation to maintain a targeted amount of excess segregated and Part 30 secured funds.

Last Updated: July 13, 2012