NIBA Journal

Insights, analysis, and updates from the National Introducing Brokers Association

November 12, 2013

Holidays Bear Gifts of More Regulations

Normal 0 false false false EN-US JA X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin-top:0in; mso-para-margin-right:0in; mso-para-margin-bottom:10.0pt; mso-para-margin-left:0in; line-height:115%; mso-pagination:widow-orphan; font-size:11.0pt; font-family:Calibri; mso-ascii-font-family:Calibri; mso-ascii-theme-font:minor-latin; mso-hansi-font-family:Calibri; mso-hansi-theme-font:minor-latin;} The closure of the government for several weeks did not stop the progress on new rules being discussed and implemented by the CFTC. As the IBs focus on building his/her business and serving customers’ needs, the regulatory responsibilities ramp up. The Commodity Futures Trading Commission (CFTC) is working on capital requirement adjustments for FCMs which could impact margin requirements and ultimately the amount of money customers will need per contract. The CFTC Rule 1.35(a) taping rule comes into effect on December 21, 2013. If you are an IB and fall under the guidelines set by CFTC, it is very important you comply with this rule. As discussed by the panel of attorneys at the...

MF Global Trustee's Advance of General Estate Assets to Make Customers Whole May Speed Distributions to Introducing Brokers

The MF Global trustee has received court approval to advance more than $600 million of general estate assets to customers to allow 100% distributions to all customers. As a result, introducing brokers with general unsecured claims may sooner receive partial interim distributions. It is unclear whether the advance will result in introducing brokers ultimately receiving lower recoveries. While a portion of the advanced assets represents relatively certain future recoveries of customer assets, a portion also does not. Nonetheless, all future recoveries of future customer assets, including those from pending class action litigation, will be allocated to the general estate and may or may not completely satisfy the full amount of the advanced funds. Therefore, it is unclear whether the advance will ultimately deplete the size of the general estate and thus the amount available to introducing brokers and other general creditors. In the trustee's motion requesting the largest portion of...

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New Recording Requirements; Compliance Deadline: December 21, 2013

November 7, 2013

9 min read

New Recording Requirements; Compliance Deadline: December 21, 2013

96 Normal 0 false false false EN-US JA X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:Calibri;} A new oral communications recordkeeping requirement was one of the key topics discussed at the 2013 NIBA Conference in Chicago on September 18, 2013. Covered registrants must comply by December 21, 2013, unless they obtain an extension. A recap of the Legal Panel discussion on the new recording requirements follows for the benefit of those not in attendance. Covered Oral Communications The Commodity Futures Trading Commission amended Regulation 1.35(a) to require futures commission merchants (FCMs), large introducing brokers (IBs), retail foreign exchange dealers (RFEDs), and certain other registrants to record oral communications that lead to the execution of a transaction in a commodity interest. Covered communications include, but are not limited to, quotes, solicitations, bids, offers, instructions, trading and prices,...

Takeaways from the Due Diligence for IBs using CTA Programs Panel

The recent NIBA Conference panel Due Diligence for IBs using CTA Programs proved to be a lively discussion with strong input from the conference participants, which included both CTAs and IBs currently marketing managed futures programs. A short list of takeaways from the discussion: While CTA databases provide a lot of information on CTAs an IB should verify on their own database information. A CTA should have a 13-column spreadsheet and a completed due diligence questionnaire. They are industry standard. If they do not, it is a red flag. More and more CTAs are getting their track records audited. Entering into a marketing relationship with a CTA is like getting married – don’t get married to someone you don’t trust. A marketing agreement with a CTA should be in writing. The material business points that the arrangement should cover are: (a) compensation, (b) exclusivity, (c) capacity rights, and (d) whether...

Advice for Brokers Selling CTAs

1. Don’t sell anything, ever, that doesn’t have an audited Track Record. If you are selling unaudited investment managers, you are selling fantasy. 2. Don’t sell anything you don’t understand. That’s how people got involved with Madoff. 3. Don’t sell anything you don’t own. Have your lawyer check your contract with your CTA. If it isn’t bullet proof, if you aren’t 100% certain of getting paid, then expect to get cheated. 4. Own the costs and benefits you add to your investment managers. You are adding cost. So, you need to find ways to add value. For example, if you have the negotiating strength, press your investment managers to lower their fees. By Fred Gehm fredgehm@tds.net Fred Gehm is an investment consultant, a former columnist forMARHedge, and the author of the forthcoming book, Trust is Not an Option: The Practical Paranoid’s Guide to Evaluating and Selecting Investment Managers. You can...

Five Ideas of CTA Due Diligence Part 2

In Part 1 of the article Five Ideas of CTA Due Diligence, we discussed several foundational concepts to keep in mind when applying a research due diligence process to a Commodity Trading Advisor. At the heart of a due diligence process is to understand as much about the manager as possible. A couple of years ago I met a journalism professor and I mentioned the students in my graduate level managed futures course at DePaul University write due diligence papers on managers. He said the due diligence process is very similar to how he teaches his investigative journalism students. Until he mentioned it, I never thought about it in those terms, but he was correct, it is the same process as investigative journalism and one can use similar techniques. During the NIBA due diligence panel I was a part of on September 18, 2013 some of the audience questions included...

CFTC suit against U.S. Bank over Peregrine to move forward

A federal judge rejected U.S. Bank's motion to dismiss a lawsuit that accused the bank of letting Peregrine Financial founder Russell Wasendorf Sr secure loans against money that belonged to his brokerage's customers, a court filing showed. >Click here for the full article

Judge lets MF Global pay what it owes commodity customers

U.S. Bankruptcy Judge Martin Glenn has given MF Global Holdings the green light to pay commodity customers all of the money they are owed. "I don't know of anyone who thought when the case started that the foreign and domestic commodity customers would be looking at 100% recoveries," Glenn said. >Click here for the full article

NIBA September Fall Membership Conference

544x376 Normal 0 false false false EN-US JA X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:"Table Normal"; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:""; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:"Times New Roman";} Dear Members, “The AML session was the best I’ve ever attended...” “Loved the CTA Due Diligence session...” “Legal Update is always my favorite part of the NIBA Conference. I get so much information I don’t get anywhere else...” These are the top three comments heard from attendees at our September Fall Membership Conference. Several ‘old’ members told me this meeting was the best in last few years because: (i) every session provided information CFTC registrants/NFA members need in order to keep up with the numerous changes taking place in the industry; (ii) the presentations explained how to put the information into action; and, (iii) the full-day event meant there were more sessions to choose from. I also met...

Fed Likely to Postpone QE Tapering Decision Into 2014

The Federal Reserve is likely to postpone any decision on exiting or tapering its quantitative easing program until 2014. Current members of the FOMC are hyper-sensitive to economic data, especially regarding US labor markets. The government shutdown and debt ceiling debate has negatively impacted economic growth as well as made what economic data that is being released suspect in terms of informational value. Our own view is that the events in Washington, DC, will possibly cost the US economy about 1.5% real GDP growth in Q4/2013. Our projections back in the summer of 2013 were for a 2% annualized growth rate in Q4/2013, and now we have lowered our projection to 0.5% real GDP growth. The Fed will likely want to wait on more dependable evidence to form its own conclusions, and thus any decision on QE is now on hold. A key problem stemming from the government shutdown is...

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