U.S. derivatives regulators are adopting new rules that aim to bolster protections for client funds that are held by futures brokers.
The U.S. Commodity Futures Trading Commission (CFTC) approved new rules submitted by the National Futures Association (NFA) that require futures commission merchants (FCMs) to strengthen their controls over the treatment and monitoring of funds held for customers, both for those trading on U.S. markets, and for funds held for foreign futures and options customers trading on foreign markets.
Under the new rules, FCMs must hold sufficient funds to meet their total obligations to customers trading on foreign markets – not just the funds representing the margin on their foreign futures. FCMs will have to maintain written policies and procedures governing the maintenance of excess funds in customer accounts; and, withdrawals of more than 25% of excess funds that are not for the benefit of customers must be pre-approved by senior management and reported to the NFA.
The rules also tighten regulatory reporting and recordkeeping requirements. And, they establish a process for the NFA to initiate an action against a firm if it believes that it is not maintaining sufficient funds.
The new rules come in the wake of the recent failures of a couple of notable futures firms, amid concerns about segregated account shortfalls. The CFTC says that the new rules are part of “an ongoing response to recent market events,” and are the result of collaborative efforts between the commission, self-regulatory organizations, and market participants.