NFA Reporting After CFTC Ruling Aimed To Increase Investor Confidence With Registrants

After the Commodity Futures Trading Commission ruled on final regulations pertaining to how customer's funds are treated, the NFA has

NFARecent final rulings by the Commodity Futures Trading Commission (CFTC) are set to go into effect during January 2014, and aimed at increasing transparency, investor confidence, and protection of customer assets held by certain CFTC registered brokerages.

The National Futures Association (NFA) has just informed its members of their respective obligations under these rules with regards to reporting and compliance, according to the latest notice to members titled I-13-46 posted by the NFA.

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In November, Forex Magnates covered the CFTC’s final ruling pertaining to enhancing protections afforded customers and customer funds held by FCMs and DCOs, and the resulting upcoming requirements aimed to provide greater transparency and security for U.S. regulated firms, in wake of the mishandling of segregated funds that caught everyone by surprise when MF Global and PFG collapsed.

How Transparent Can it Get Until it’s Safest, Without Over-Regulating? 

The notice to members from the NFA yesterday alerts certain registrants of the new notification and report filing requirements under the final regulations, and includes certain filings that must be done immediately (considered more urgent related matters) and other filings that have up to a 24-hour window to be filed with the regulator (for less urgent but still time sensitive matters), in addition to other obligations.

As the NFA is all about investor protection, its tasks are similar in scope and direction to the CFTC whose recent rulings aimed to tackle the evolving common challenge both face in preventing crises that result in financial losses to the clients they seek to protect.

The similar mission statements held by both agencies also aim to keep the US markets competitive, a goal that perhaps became more distant in recent years after taking ‘one step forward and two steps back’ as industry-wide regulatory tightening drove out business.

Speaking of events related to Peregrine Financial Group (PFG) and MF Global, in its latest annual update dated 2012, NFA’s CEO, Daniel Roth and Chairman Christopher Heymeher, jointly commented in a letter saying among other things that, “For the second time in nine months, futures customers learned that their segregated funds—funds they had long believed were secure and untouchable were missing…”

New Rules Aimed at Investor Protection, NFA will Monitor the Firms Better

The above-mentioned rules published by the CFTC and dated November 15th can also be found on the CFTC’s website, and are aimed at addressing aspects of the challenges voiced by the NFA’s most senior management in the above-mentioned letter.

Below is a synopsis of the items described in the notice to members related to reporting and filing obligations which are set to go into effect in time for the CFTC rule effective dates.

Starting on January 13, 2014, FCMs must provide notification electronically through the WinJammer filing system – to the CFTC and its Designated Self-Regulatory Organization (DSRO) – for all notices required under CFTC Regulation 1.12, including the following new events under the time specified, according to the notice.

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These included the following excerpted from the latest notification to NFA members, and with added comments from Forex Magnates.

Immediate Notification – in such conditions as listed below, the NFA member must send immediate notification (in addition to notices listed in regulation 1.12 as mentioned above):

  • Segregated, secured, or cleared swaps collateral is not invested in accordance with CFTC Regulation 1.25.
  • The amount of funds held in segregation, secured, or cleared swaps collateral accounts is insufficient to meet the applicable residual interest targets.
  • The FCM, its parent or a material affiliate experiences a material adverse impact to its creditworthiness or ability to fund its obligations, including any change that could adversely impact the firm’s liquidity resources.

Notification within 24 Hours – these appear less time-sensitive yet important- enough for the regulator to want to know about them within not more than a day.

  • The FCM experiences a material change to its operations or risk profile, including a change in senior management, the establishment or termination of a business line, or a material adverse change in the FCM’s clearing arrangements.
  • The FCM receives a notice from the Securities and Exchange Commission (SEC), a securities self-regulatory organization, or a futures self-regulatory organization, which identifies the FCM as the subject of a formal investigation.
  • The FCM receives correspondence from the SEC or a securities self-regulatory organization regarding concerns with the FCM’s capital adequacy, liquidity, or internal controls.
  • The SEC or a securities self-regulatory organization issues an examination report to the FCM (the FCM must provide the CFTC with a copy of the report).
  • If the FCM is registered as a securities broker or dealer, notice must also be filed with the FCM’s securities self-regulatory organization. Every notice or report that is required to be filed under CFTC Regulation 1.12 must include a discussion of how the reporting event originated and what steps have been, or are being taken, to address the reporting event. FCMs should become familiar with the full scope of all notification requirements identified in CFTC Regulation 1.12.

Report Filings

  • Certified Financial Statements – Starting January 13th, 2014, all financial statements required to be certified by an independent public accountant (and as per CFTC regulation 1.14) must be filed with the CFTC and DSRO electronically through WinJammer.
  • Acknowledgement Letters – FCMs and their depositories will have until July 12, 2014 to file newly executed acknowledgment letters for any accounts existing prior to January 13, 2014.
  • Daily and Month-End Financial Statements – new line items added to the daily computations and will be effective January 13th, 2014, and reports which will further line items will be added to the month-end report effective for January 2014 reporting.
  • Segregated Investment Detail Reports – Starting January 15th, 2014, the names of all banks/institutions/trust accounts,etc…that members use to hold customer funds, filed bi-weekly through WinJammer, and includes numerous other line-item specific data related to the amounts of customer’s funds, who’s holding them, and what amounts have been used as margin for the purchase of securities.
  • Risk Management Program – to be initially filed electronically through WinJammer with the CFTC and DSRO by July 12, 2014, this program appears to provide greater transparency for the regulator to asses the financial credit-worthiness of the counterparty on multiple dimensions of risk-analysis (including market, credit, liquidity, foreign currency, legal, operational, settlement, segregation, technological, capital, and any other applicable risks together with a description of the risk tolerance limits set by the FCM).

As the above-mentioned items are not exhaustive, a full copy of the official release on the NFA website can be seen with further details on the categories mentioned and contact information for key NFA staff.


Forex Magnates opines that generally speaking since firms that hold funds such as FCMs or DCOs that already use WinJammer to file electronically may simply need to compile the additional data so that the appropriate compliance persons can submit the verified information, complying with the new rulings doesn’t appear to be overly burdensome – provided that firms have an easy method to access the data along side the information they currently compile to meet their existing reporting and filing obligations (easier said than done).

The ease of this will obviously depend on their respective administrative systems and infrastructure for internal reporting, while the general information for bank accounts (names of banks, addresses, etc…) will likely be easier than the challenges of risk-management and respective tolerances and setting the proper written policies and procedures that reflect said thresholds.

CFTC Further Short-Staffed, Fate In Question

As CFTC Commissioner Mark Wetjen has now taken over the interim role as Acting Chairman of the CFTC as Chairman Gensler stepped down, the question is what is the status of Timothy Massad’s planned senate confirmation hearing, following his appointment by President Obama to take the helm of the CFTC?

In a DealBook Article posted by the New York Times, Susan Ochs, who served with Mr. Massad in the Treasury, was quoted as having said that Mr. Massad was a zealous advocate for the taxpayer in negotiations with the banks and she said, “He knows the industry well enough to call them out when they are taking advantage and pushes back pretty hard.”

If Mr. Massad becomes the next CFTC Chair, the fate of the underfunded, understaffed agency may be in the hands of someone who will push hard for customers.

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