NIBA Journal

Housekeeping, Reminders and Updates

NATIONAL FUTURES ASSOCIATION Information Systems Security Programs - Cybersecurity On October 23rd the National Futures Association (“NFA”) announced the adoption of the interpretive notice regarding NFA Compliance Rules 2-9, 2-36 and 2-49. The purpose of the interpretive notice was to address information systems security programs – cybersecurity. The interpretive notice entitled Information Systems Security Programs (“Cybersecurity Interpretive Notice”) was recently approved by the Commodity Futures Trading Commission (“CFTC”). The Cybersecurity Interpretive Notice requires Member firms to adopt and enforce written policies and procedures to secure customer data and access to their electronic systems. The terms of the Interpretive Notice become effective March 1, 2016, for all NFA Members. As noted in the October 23rd Notice the Members, the NFA stated that the purpose of the Cybersecurity Interpretive Notice was adopt a principles-based risk approach that would provide flexibility for Member firms to develop a bespoke information systems security program (“ISSP”)...

Cyber Security

While attending the recent NIBA conference, we learned about new rules affecting our industry. Brokers will no longer be able to email client documents to their customers, clearing relationships, or service providers without being highly aware of their duty to protect client information from would-be hackers. This is big adjustment for the industry. Just as we adapt to the fluctuating Chicago seasons, in time, we will learn to adjust to these new rules as well. At Midland, we provide administrative and custodial services for futures accounts for individuals that are using IRA money to invest in these products. As the administrator, we require documents to setup and fund these investments: account statements, FCM paperwork, CTA disclosures, letter of direction, and so on, depending on the nature of the product. For the past many years, documents have been sent primarily by email, fax, and regular mail. In the digital age, no...

NFA Compliance – Preparing for an NFA Exam

Since 2012, the number of CPOs, CTAs, and IBs required to register with NFA has seen a dramatic increase. With this increase came a renewed commitment by regulators to not only audit new NFA Members within the first year, but more frequently thereafter as well. The frequency of subsequent on site audits depends upon an analysis of risk factors. Some of the risk factors include but are not limited to: Customer Complaints Qualifications of Principals Principals Prior Firm Regulatory Issues Reviews of Promotional Materials Regulatory Filing Issues Time between Registration and/or last NFA Exam Of late, NFA has been scrutinizing financial statement footnotes, perusing websites, and searching for industry publications for firm information. Furthermore, information on forms submitted to NFA such as Form PQR, 1FRs, and PRs are also analyzed for risk factors. Typically, NFA will notify new members two weeks prior to a visit. However, NFA has been known...

Cybersecurity: Before & After the Breach

Security breaches are quite prevalent in the media today. Many security experts feel it’s not a question of if your company will suffer a breach of your information, but when. A panel at the NIBA Annual Members Meeting recently explored this topic. Preparation for a potential event is key to being able to address it. Information Technology (IT) enterprises of all sizes need to know exactly what data they have, where it is stored, and what the potential threats to the data are. Even small companies need to pay attention to the basics of securing their computing environment. These include: • Timely patching of operating system and other software • Using strong passwords for machine access • Performing backups of critical data • Protecting sensitive data through full disk or file encryption • Using a host-based firewall and anti-virus software • Learning to recognize phishing and other scams Drafting an...

Cybersecurity: A New Frontier for IBs and CTAs

The importance of cybersecurity has taken many industries by storm, and the futures industry is no exception. Indeed, CFTC Chairman Timothy Massad has recognized cybersecurity as “the single most important new risk to market integrity and financial stability.” The CFTC has been active in cybersecurity awareness for a couple of years, but the agency’s recent laser-like focus has made cybersecurity awareness an imperative rather than a consideration. The CFTC began to take earnest steps with respect to cybersecurity in February 2014, when it issued CFTC Advisory No. 14-21, which outlined the best practices for meeting cybersecurity responsibilities. In the Advisory, the CFTC cautioned that IBs, CTAs and others should, “at a minimum,” abide by several “best practices,” which include: • Designating an employee with privacy and security management oversight responsibilities; • Identifying all reasonably foreseeable risks to security, confidentiality, and integrity of personal information and related systems; • Designing and...

October Chairman's Letter

Dear Members - On November 9, the NIBA will be in Washington, DC to meet with members of the CFTC, as well as other industry participants. Steve Petillo, Mike Burke and I want to bring those issues which are most important to YOU to the attention of the Commissioners. Please forward your suggestions and questions for the CFTC to anyone of us prior to October 30. On October 12, the University of Illinois sponsored a symposium entitled “How Should We Measure Futures Investment Performance?” Organized by Dr. Paul Peterson, U of I Urbana-Champaign featured four presentations -- two presented by our NIBA colleagues. Jerry Nolan (County Cork, LLC), NIBA Board Member discussed “The Russian Invasion of Crimea and the Perfect Storm in the Soybean Crush: Three Investor Experiences with a Discretionary Ag Program in 2014.” Mark Shore (Shore Capital Research, LLC), NIBA Advisory Group member, presented a study entitled “Risk...

NIBA Announces the Formation of its first-ever Advisory Group

NIBA is excited to announce the formation of the NIBA Advisory Group (AG). NIBA, now in its 25th year, is proud to have a distinguished group of individuals working together on initiatives which will grow the association, and help members service their customers more effectively. Individuals serving on the AG each have a unique knowledge of the futures industry, and each has agreed to share their expertise for the benefit of NIBA members. The Advisory Group (AG) will meet in Chicago early December; the term of membership is 2 years. AG Members for 2015 to 2017 include: * Dan Basse, AgResource * Matt Giarelli, BarChart * Kelly Hartman, CME Group * Dr. Carl Luft, DePaul University * Marc Nagel, Marc Nagel Consulting * Mark Ruddy, Ruddy Law, PLLC * Mark Shore, Shore Capital Research * Ginger Szala, Ginger Szala Ink * Ted. Theisen, UnitedLex NIBA board members serving on this...

NIBA in Washington, DC

On November 9, the NIBA will travel to Washington, DC to meet with various members of the CFTC as well as other industry participants, such as the CMC.  Melinda Schramm -- melinda@futuresrep.com, Steve Petillo -- petillo@coquest.com and Mike Burke -- mikeb@highgroundtrading.com will represent the NIBA in meetings with the Commissioners, staff and other personnel. Please contact Melinda, Steve or Mike if you have questions or issues you would like to have discussed. Your questions can be presented anonymously.

Upcoming DePaul University Cyber-Risk Conference and Arditti Center Open House

Volatility and Risk

It is very difficult to separate the concepts of volatility and risk, the two are intimately intertwined. Look no further than the pending Federal Reserve rate decision at time of this writing. Most traders have taken to the sidelines to wait for the decision from the Federal Reserve. Will they raise rates? Will they keep rates the same? Will they not? This is been the permeating question during this last quarter. It is also a question of value. How much does the answer impact in the markets. As a result, strategies are formed, and bets are placed, and risk is managed accordingly. The concept is quite simple but is sometimes difficult in practice. Commonly referred to as the three C's; First there needs to be a concept of what's going on, second one must have conviction to initiate positions, third (and possibly most importantly) there better be a contingency plan...