In early February, NFA held its Annual Member Meeting. NIBA attended and asked NFA staff several questions suggested by NIBA association members. The answers to two of the questions asked was printed in our February newsletter. This is a third question, and NFA's response.
Q: What does the NFA do to monitor FCM Segregated Accounts?
A: Investor protection is a key element of NFA's mission, and the segregation of customer funds by an FCM is an important aspect of investor protection. Each FCM has a designated self-regulatory organization (DSRO) that is primarily responsible for monitoring that FCM for compliance with NFA rules and CFTC regulations, among other things. NFA performs routine annual risk-based exams of the FCMs for which it is the DSRO.
In addition to annual exams, NFA also has measures in place that enhance its ongoing risk monitoring of FCMs that hold customer funds report their customer segregated, secured and cleared OTC collateral funds balances to NFA or CME Group (CME) daily, as of the close of the preceding business day. In 2013, NFA and CME implemented a daily confirmation process requiring third-party depositories, including banks, derivatives clearing organizations (DCO), and carrying brokers, that hold customer segregated funds to report the balances in those accounts directly to NFA or CME. On a daily basis, NFA compares the totals reported by the FCMs for which NFA is the DSRO with the amount reported by the third-party segregated funds depositories and investigates and reconciles any material differences. The CME performs a similar function with regard to firms for which it is the DSRO.
In NFA's BASIC system, NFA makes available to the public select information from FCM filings under FCM Financial Information. This information includes an FCM Capital report, an FCM Customer Segregated Funds report, an FCM Customer Secured Amount Funds report and an FCM Cleared Swaps Customer Collateral report, where applicable.
