NIBA - Celebrating 35 Years

NIBA Journal

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

NFA Rep Panel Session
2 min read

NFA Rep Panel Session

Most of the work I have been doing on the NFA board thus far has been trying to open the eyes of fellow board members and senior NFA staff to issues that affect the IB community. Issues such as no accountability following MF Global and PFG, inexperienced auditors, the inconsistent promotional material review process, the doubling up of AML responsibilities between the IB and FCM, and more. Unfortunately, the IB is almost an afterthought with everything else going on, from the integration of swaps to implementing the BRG report recommendations to improving customer protections. But there are those willing to listen, and I believe progress (however slow) is being made. To make more progress, however – we need to be louder as an IB community. The general responses I have gotten in my interactions thus far have been ones of doubt, with the usual response something along the lines of...

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Representing CTAs & CPOs: a Large, Growing and Changing Constituency
3 min read

Representing CTAs & CPOs: a Large, Growing and Changing Constituency

As one of four NFA Board Members representing CTAs and CPOs, I'm working to represent the interests of a broad spectrum of money managers and traders. But just who are these constituents and what are their interests? The answer is not simple and increasingly a moving target. That is because the population of CTA/CPO member firms is rising exponentially. In 2012, the CFTC rescinded a widely held exemption for certain commodity pools. In addition, the CFTC broadened the the definitions of CTAs and CPOs to include swaps. As of the first quarter of 2013, those changes yielded over 1,100 new members in the CTA/CPO category, almost half of whom use swaps. More firms will be required to register later this year, as an exemption from registration expires for "fund of funds" and family offices. To get a handle on just what are the needs of CTAs and CPOs, I have...

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Risk Management Procedures Now Required
1 min read

Risk Management Procedures Now Required

CFTC Regulation 1.73 affects IBs and FCMs that execute orders for customers. Thus IBs who execute give-up orders must adopt risk management procedures. This new regulation also applies to bunched orders. During the Legal Update panel at the NIBA conference on September 18th, we will be discussing how new regulations, including 1.73 affect IBs, FCMs, Swap Firms as well as other NFA Members. About the Author Michael Coglianese CPA, P.C. has been providing compliance, auditing, and accounting services for the futures industry for over 25 years. Mike can be reached directly at 630-351-8942 or via email mike@cogcpa.com. Visit www.cogcpa.com for a more complete picture of services offered. The Opinions expressed are the opinions of the author. The opinions, the trading styles, trading information and trading programs are not endorsed by the NIBA, but are the individual opinions, styles, information and programs of the author.

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Not a NIBA Member Yet? No Problem.
NIBA Briefings
2 min read

Not a NIBA Member Yet? No Problem.

Are you planning on attending the NIBA fall conference in September, but youʼre not a member yet? No problem. You can join the Association when you register for the conference. Attendance at the event is complimentary for NIBA members. IBs and CTAs pay $150 per year. APs pay $75 per year. Also included in the IB and CTA membership is a subscription to the NIBA Journal, our online Newsletter and a listing in the online Broker Directory for the remainder of 2013. FCMs, Service Providers and others are urged to contact me directly. The NIBA membership meeting is more important than ever this fall. NFA and CFTC regulation changes will affect your day-to-day business. Reporting and recording requirements, plus potential substantial changes in FCM capitalization requirements will have an effect on your daily operations. Each of our business sessions will help you understand, prepare and comply with the NFA and...

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NIBA Legal Update Panel Preview
NIBA Briefings
1 min read

NIBA Legal Update Panel Preview

I have the privilege of leading the NIBA Legal Update once again this year. This panel of industry experts including Mike Coglianese and Jeff Kopiwoda will address legal developments - CFTC, NFA and others - which will affect an IB or CTA business. One issue we will discuss is CFTC Reauthorization and why it is important to each of us. The NIBA has submitted a number of suggestions to the U.S. Senate Committee chaired by Debbie Stabenow which is responsible for the reauthorization process. Included are comments on customer protections, liquidation processes in the event of an FCM bankruptcy, Reg. 1.35 Recordkeeping Requirements, customer account insurance and FCM bankruptcy reform. We will be include all of this and more in our panel at 2:30pm, September 18, CME Group Building, Chicago. I look forward to seeing you in Chicago. Please contact me directly if there are issues you would like addressed...

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Global Macro Economics Perspectives
Operations
5 min read

Global Macro Economics Perspectives

In the United States, all eyes are on the Federal Reserve (Fed). There are three big questions. When and how fast will the Fed begin tapering its asset purchases (QE exit)? Who will President Obama appoint to be the next Chair of the Fed? And finally, well into the future, when will the Fed abandon its near-zero target federal funds rate and start raising rates. A qualified answer to the QE exit question may come on September 18, when the Fed issues its press release from its FOMC (Federal Open Market Committee) meeting. Whatever tapering may be announced, though, its future course is likely to be nearly totally dependent on the evolution of labor market trends. Our perspective is that we are headed for slow yet steady progress, despite some serious headwinds from fiscal policy in the US and only modest growth internationally. Perhaps, more interesting for the long-run course...

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Why Past Performance of a Conventional (60-40) Portfolio Is NOT Indicative of Future Performance: Part 2
Marketing
7 min read

Why Past Performance of a Conventional (60-40) Portfolio Is NOT Indicative of Future Performance: Part 2

As discussed in Part 1 of "Why Past Performance of a Conventional (60-40) Portfolio Is NOT Indicative of Future Performance", the results of a conventional 60-40 portfolio over the last 30 years aren’t likely to repeat in the near future. Going forward, if the P/E ratio reverts to its long-term average of 16.4, corporate profits grow at their historical average of +4.70%, and dividends increase at the same rate as corporate profits (and the dividend payout ratio increases to its long-term average), stocks will appreciate at just 7.05% per year over the next decade. Here’s the arithmetic. Future returns from U.S. equities To determine the likely return for the S&P 500 over the remainder of this decade we need three primary inputs: The rate of earnings growth for the companies underlying the index, The most likely P/E ratio people will pay for those earnings at year-end 2020, and The dividend...

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Marketing of Commodity Trading Advisors
Marketing
5 min read

Marketing of Commodity Trading Advisors

With expanding areas of potential client pools and capital, commodity trading advisors (“CTA”) are often looking outside of their firms to tap into these untouched resources. To accomplish this, CTAs often contract with an introducing broker (“IB”) whose sole goal is to bring the CTA new clients. This article discusses the terms of the relationship and highlights some things all parties should be aware of. In order to facilitate an efficient and beneficial relationship between a CTA and placement agent, it is highly recommended that the parameters of relationship are memorialized in writing via a “Placement Agent Agreement.” These agreements set out the general rights and obligations of either party, discuss the specific services to be rendered and the compensation for such services, and set forth the term of the relationship. Specifics of Placement Agent Agreements: Things to Keep in Mind While the specifics of each placement agent agreement will...

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What Constitutes a Swap?
3 min read

What Constitutes a Swap?

In a sense, introducing brokers act as gatekeepers to the futures and derivatives markets. Following the passage of the Dodd-Frank Act, certain OTC products which were formerly not regulated are now subject to the CFTC’s jurisdiction. Firms that deal with these products may need to be registered and the products traded may need to be cleared at an exchange. A customer may contact an introducing broker with a particular trade that it wants to make, but will probably not be concerned whether the trade is legally classified as a future, swap or forward. However, it will make a difference to the introducing broker. As registrants, introducing brokers need to be aware of these different products, especially those now classified as “swaps,” and the ramifications of this classification. The CFTC’s definition of swaps includes those products traditionally considered swaps, such as credit default swaps, equity index swaps, and interest rate swaps.(1)...

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Overview of AML Policies and Procedures for Introducing Brokers
3 min read

Overview of AML Policies and Procedures for Introducing Brokers

Federal law and NFA rules require Introducing Brokers to maintain an Anti-Money Laundering program implemented by written policies, procedures and controls. NFA provides a number of materials to help IBs ensure their AML programs are compliant, including the Self-Examination Checklist, Exhibit A thereto, and other materials on NFA’s website. The AML program has several components as described below. IBs must designate one or more individuals to oversee the AML program and on an annual basis must have an independent audit of their AML program and train employees on AML procedures. 1. Customer Identification Program (“CIP”) The CIP must allow the IB to establish a reasonable belief that it knows the true identity of its customers. The CIP must provide that the IB will request certain information from the customer and will verify that information using documentary or non-documentary sources, must explain when steps will be taken if the IB cannot...

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