NIBA Journal

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

August 6, 2013

Common Mistakes, Introducing Brokers and AML Procedures

Most introducing brokers (“IBs”) view their Anti-Money Laundering (“AML”) obligations quite minimally but this can be a monumental mistake. Generally IBs believe their AML responsibilities are limited to ensuring a compliance manual is on file and that annual AML training has been completed by necessary employees. This belief is typically the result of customer accounts being held and funded through a Futures Commission Merchant (“FCM”). Since client accounts are processed at an FCM, IBs take direction from the clearing firm regarding their Customer Identification Program (“CIP”). While this may make sense in some instances introducing brokers tend to rely on FCM’s to such an extent that they largely abdicate their AML responsibilities. AML Policy Obligations The aforementioned practice is potentially detrimental to the IB, the FCM, and the overall AML process itself. There are three primary components of Anti-Money Laundering procedures; prevention, detection, and reporting. Prevention is largely addressed through...

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Understanding an IB's AML Program Requirements

August 6, 2013

4 min read

Understanding an IB's AML Program Requirements

Since April 24, 2002, NFA Compliance Rule 2-9(c) has required all NFA Member FCMs and IBs to have an anti-money laundering (AML) compliance program in place. At a minimum, the AML program must establish and implement policies, procedures, and internal controls reasonably designed to assure compliance with the applicable provisions of the Bank Secrecy Act, designate an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program, provide for independent testing for compliance to be conducted by Member personnel or by a qualified outside party, and provide ongoing training for appropriate personnel. NFA Compliance Rule 2-9(c) and the related interpretive notice set forth the minimum standards and provide Members with additional guidance to create and implement an adequate program. In 2010, NFA launched an online system designed to help FCMs and IBs develop AML programs that meet the requirements of the BSA and...

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August 6, 2013

2 min read

Still Stupid After All These Years

To be perfectly honest, I’m not sure any professional Fund of Fund managers anywhere would admit using any of the techniques below, much less advocating their use. That said, in my experience, these techniques are both popular and bone-stupid. Hiring People with Charisma Charisma doesn’t count. It’s not evidence. Hiring People without doing all of your Homework Many FOF managers do only part of their job and fight any suggestion that there is anything else in the world that might be of some importance. Naturally, this problem is not limited to FOF managers. Consider, as an example, that in 2008 the various bond-rating services rated collateralized mortgage obligation without looking at individual mortgages. Hiring people from your affinity group An affinity group is any group its members consider important. The question is not whether someone is a member of your group. The question is whether or not that person can...

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August 6, 2013

4 min read

Five Ideas of CTA Due Diligence

Over the years I’ve found people perform varying degrees of due diligence of a Commodity Trading Advisor (CTA). Some may only crunch the returns of the manager. Others will only ask the CTA to fill out a due diligence questionnaire and some will do a full due diligence process on the manager including research and operational due diligence. The first two points listed are good places to start, but is not the ending point as your goal is to get as close to a full due diligence process as possible. Regarding the research/strategy component of due diligence, below are five major ideas to keep in mind when performing due diligence on a manager: 1) You want to know and understand as much as possible about the manager’s strategy. In my article from a few years ago “Decoding the Myths of Managed Futures” I mentioned that some have stated they were...

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New Recording Requirements; Compliance Deadline: December 21, 2013

August 6, 2013

2 min read

New Recording Requirements; Compliance Deadline: December 21, 2013

The CFTC has amended its Rule 1.35 to require futures commission merchants (FCMs), certain introducing brokers (IBs), retail foreign exchange dealers and certain other registrants to record all oral communications that lead to the execution of a transaction in a commodity interest. The new rule became effective on February 19, 2013, and compliance with the new oral communications recordkeeping requirement must be implemented by December 21, 2013. At the Chicago NIBA Conference on September 18, 2013, the Legal Update Panel will be discussing a number of new rules and what they mean for industry participants. Among other topics, the discussion concerning amended Rule 1.35 will include: which IBs are exempt from the new oral communications record keeping requirement; how industry participants may obtain relief from the CFTC in the form of an alternative compliance schedule; protective measures that registrants should consider implementing to avoid running afoul of state and federal...

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August 6, 2013

2 min read

NFA Representatives Panel Preview

I’ve been asked to moderate the NFA Representatives Panel at the upcoming NIBA membership meeting in September. This is an opportunity I’ve been hoping for -- an opportunity to discuss specifics with our elected representatives. I’ve wondered how the IB and CTA representatives to the NFA interact with other Board of Director members - do they get together ahead of the meetings to discuss issues to bring before the Board? I’ve wondered how they interact with NFA staff - do they have regular communications with staff members to update themselves on topics on which the NFA is working? How carefully are they following the CFTC and other regulators? Do our representatives bring specific issues proposed by the communities they represent before the NFA Board or do they simply address those topics brought to the table by the NFA? As a longtime member of the NIBA, I am aware of the...

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From Paul J Georgy, GIB Representative on NFA Board of directors

August 6, 2013

2 min read

From Paul J Georgy, GIB Representative on NFA Board of directors

The CFTC is not done writing rules mandated by the Dodd-Frank Bill. Customer protection is the focus and who can argue with that? However, it will have an impact on the way FCMs and IBs do business. Currently the CFTC is considering a change in margining policy requirements. That means FCMs must have the ability to calculate accurate margin requirement intraday. The changes may cause intraday margining by certain participants and will increase capital requirements of FCMs. The trickledown effect on the IB could require our retail clients to meet margin calls daily. The old way of receiving a check by mail will not be good enough for some FCMs. There will be a comment period notice in the Federal Register. Make sure you comment on your behalf directly or through the NIBA. Another rule that will impact some IBs is the new taping requirement of all conversations that lead...

MF Global Trustee to Boost Distributions to Ex-Customers

MF Global Inc.’s former customers should get “significantly” increased distributions in coming months, and the goal is still 100 percent recoveries, the failed brokerage’s trustee said. Customers who traded on U.S. exchanges may get distributions starting in early September that would bring their percentage recoveries into “the high nineties” while customers who traded on foreign exchanges may get “in the sixties,” trustee James Giddens said in a statement today. “These further distributions are dependent on final approval of a motion by the trustee to confirm the allocation of property already received,” Giddens said. His projections assume that agreements with MF Global’s U.K. unit and JPMorgan Chase & Co. (JPM) take effect in mid-August. A prior projection in June estimated customers would get 94 cents on their dollar. Giddens said at the time that disputes including a lawsuit against directors and officers delayed the potential for full recovery. Most customers have...

MF Global Agrees to Pay Customers 100% to Settle CFTC Suit

Last week, CFTC and MF Global Inc. agreed to a settlement whereby MF Global Inc. would pay restitution to its former commodity customers to bring them to a 100% return of their accounts. This restitution, which requires judicial approval, would likely involve the trustee sending out checks bringing both 4d domestic futures customers and 30.7 foreign futures customers to 100% toward the end of 2013. The trustee indicated in a consent order filed on the MF Global Inc. docket that the trustee will wait to receive a payment from the MF Global UK affiliate before requesting court authority to make the 100% restitution payments. The trustee expects to receive that payment from the affiliate around September 10, 2013, and the trustee would then file the request within five days of receiving the payment. The processes of achieving court approval and mailing checks may each then take several months, bringing customer...

NIBA Board of Directors Letter to Senate Committee

July 1, 2013 The Honorable Debbie Stabenow Chairwoman U.S. Senate Committee on Agriculture, Nutrition and Forestry 328A Russell Senate Office Building Washington, DC 20510 The Honorable Thad Cochran Ranking Republican Member U.S. Senate Committee On Agriculture, Nutrition and Forestry 328A Russell Senate Office Building Washington, DC 20510 Dear Chairwoman Stabenow and Ranking Member Cochran: The National Introducing Brokers Association appreciates the opportunity to submit the following comments to the Senate Agriculture Committee (Committee) with regard to issues relating to the reauthorization of the Commodity Futures Trading Commission (CFTC). The National Introducing Brokers Association (NIBA) is a non-profit membership association of Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) and Associated Persons (APs). Founded in 1991, the NIBA’s purpose is to provide education to registrants primarily engaged in futures and options transactions on behalf of retail market users. The Association has the support of Futures Commission Merchants (FCMs) and Exchanges, and has...

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