The CFTC has completed a limited review of registered Futures Commission Merchants (“FCMs”) ordered as a result of the MF Global bankruptcy. The findings, released this week, show that all FCMs with segregated or secured funds were fully in compliance with CFTC regulations. The Commission was checking FCMs holding 4d segregated funds or Part 30 secured amount funds to ensure that customer funds were protected and firms were in compliance with CFTC regulations. Of the 120 registered FCMs, 70 held segregated or secured funds and were subject to review.
According to the CFTC, all 70 firms maintained assets in 4d accounts in excess of the net liquidating equities of its customer, as mandated by the CEA and Commission ruled. In total, the FCMs held $13 billion more than they owed to customers. Furthermore, the FCMs held assets in Part 30 accounts in excess of the required aggregate margin for all customers’ open futures positions. They surpassed their obligations to customers by $7 billion.
In order to assess the state of each firm’s compliance with client funds rules, regulators from the CFTC, CME, and NFA used records and third-party source documents kept at the FCMs. These reviews were not intended to be full audits, and therefore regulators did not confirm balances with depositories or other institutions holding customer funds.
Statistics Provided by the CFTC:
• The FCMs held a total of approximately $166 billion in segregated accounts, which was approximately $13 billion (or 9%) in excess of the $153 billion owed to customers. The FCMs also held approximately $48 billion in Part 30 secured accounts, which was approximately $7 billion (or 17%) in excess of the Part 30 secured amount obligation.
• $137 billion of the total segregated funds of $166 billion (or 82.5%) and $42 billion of the total Part 30 secured funds of $48 billion (or 87.5%) was concentrated in the 14 FCMs reviewed by Commission staff.
• The FCMs posted approximately $74 billion of segregated funds with Commission-designated derivatives clearing organizations. This represents 45% of the total segregated balance of $166 billion.
• The FCMs held approximately $33 billion of the total Part 30 secured funds of $48 billion (or 68%) deposited by customers for trading on foreign futures and options markets at affiliated banks and affiliated foreign brokers. FCMs also invested approximately $3 billion of Part 30 secured funds in internal reverse repurchase transactions and reverse repurchase transactions with affiliated entities.
• The FCMs held approximately $30 billion of Section 4d segregated funds (or 18% of the total segregated funds of $166 billion) with affiliated banks and/or custodian entities. FCMs also invested approximately $12 billion of Section 4d segregated funds in internal reverse repurchase transactions and reverse repurchase transactions with affiliated entities.