The futures industry is recommending more rigorous reporting and internal controls for brokerages, as $1.6 billion of customer money is still unaccounted for after the bankruptcy of MF Global Holdings Ltd.
Brokerages should be required to submit daily reports to their self-delegated regulator — often a clearinghouse the firm uses — of how much customer money must be held separate from the firm’s own money regulator, the Futures Industry Association said in a statement Wednesday.
The group, which represents the banks, brokerages and investment managers active in the exchange-traded derivatives market, also recommended that firms file twice-monthly accounts of how customer money is being invested.
The Commodity Futures Trading Commission and bankruptcy trustees are among investigators probing the events surrounding the Oct. 31 collapse of MF Global. The loss of customer money at a bankrupt brokerage is a first in the futures industry, according to CME Group Inc., the world’s largest derivatives exchange and self-regulatory auditor of MF Global.
The CFTC began two days of meetings in Washington on Wednesday to discuss additional ways to protect customer accounts. The event is an early step toward more rules and regulations that would require an official CFTC proposal and vote by the agency’s five commissioners. The FIA group, formed last month, is determining the best ways to maintain internal controls over customer accounts at futures brokerages and will present its final report next month.
Futures brokers tally their customer segregated funds daily now, but are not mandated to share that with their self-regulator or the CFTC. The reports to self-regulators would be shared with the CFTC because it has access to the electronic reporting system the FIA is recommending, the group said.
The FIA also proposed that the CFTC pass a rule mandating futures brokers to certify annually that “no material weaknesses in its internal controls” regarding the protection of customer money have occurred.
