In his testimony, Daniel Roth asserts the need to improve regulatory surveillance, audit and fraud detection techniques in light of customer losses resulting from the failures of MF Global and Peregrine.
Citing new NFA rules recently approved by the CFTC, Roth outlines the following forthcoming requirements:
“All FCMs must report certain information concerning the FCM’s financial condition that will then be made available to the public on NFA’s web site. This information includes the firm’s capital requirements; its excess capital; the amount of customer segregated funds held by the firm; the amount of excess segregated funds maintained by the firm; whether the firm engages in proprietary trading, once that term is defined in the context of the Volker rule; and whether any custodial bank holding customer funds is an affiliate of the FCM.
“All FCMs must report to NFA detailed information on how customer segregated funds are invested, and that information will also be made available to the public through NFA’s website.
“If any FCM reduces its level of excess segregated funds by 25% in any one day by making disbursements that are not for the benefit of customers, a financial principal of the firm must approve the disbursement, must immediately notify the firm’s DSRO, and must certify that the firm remains in compliance with all segregation requirements.”
Roth goes on to note that all of these rule changes will promote greater transparency for both customers and regulators, and suggests that they will help prevent a recurrence of the types of customer funds problems as experienced with the MF Global fallout.
View testimony in full here (links externally to NFA website).