NIBA - Celebrating 35 Years

NIBA Journal

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

FCM Risk Assessment - Trust and Verify
MF Global Updates
5 min read

FCM Risk Assessment - Trust and Verify

The recent insolvencies of MF Global and PFGBest, along with the near miss of Knight Capital, have sent customers scrambling to confirm the safety of their property and the financial health of their brokers. Prior to October 2011, most futures customers never gave the solvency of their FCM a second thought. Customers now find themselves on the hunt for the canary in the coal mine. In a financial world fraught with rogue traders, Ponzi schemers and high frequency meltdowns, what is the best approach for detecting a Corzine or Wasendorf at your FCM? The quick answer is: there is no quick answer. You must first consider what type of trader you are and on what exchanges you will be trading. There are a number of additional factors to consider, most of which are changing as regulators react to recent collapses. Many reforms are also in the pipeline which may change...

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Chairman's Message | August 2012
Member Announcements
2 min read

Chairman's Message | August 2012

Dear NIBA Member - Finding the right FCM to clear customer business is the #1 priority of most IBs right now. We know that over 50% of the IBs transferred from MF Global, Inc. have subsequently transferred out of the FCMs to which they were transferred - many because of a “bad fit.” Sources are reporting that up to 50% of the IBs and CTAs who did business with PFG have not found a new clearing FCM a full six weeks after the firm’s demise. As registered industry professionals - IBs, CTAs or APs, you have many responsibilities and obligations to your clients. One of those responsibilities is to assure that the relationship you have with the FCM clearing your customer’s transaction is the the best relationship for your customer’s needs. Of course, this also help you develop and implement a good business plan for your firm. NIBA’s FCM Members...

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Economic Outlook - Macro, Micro and Agricultural
Marketing
1 min read

Economic Outlook - Macro, Micro and Agricultural

David Oppedahl is a business economist in the economic research department at the Federal Reserve Bank of Chicago, where he directs the Chicago Federal Reserve District’s survey of agricultural banks on agricultural land values and credit conditions. He regularly briefs the Chicago Federal Reserve on the state of our agricultural economy, including rural development, and other microeconomic research. The results of Mr. Oppedahl’s research are used to publish the Chicago Fed’s quarterly agricultural publication - AgLetter. David will present an economic outlook session at the NIBA September 12 program which incorporates current data with an explanation of the slow economic growth since the Great Recession of 2007-2009. Included is a discussion of the role the Federal Reserve has played in stimulating the economy and current developments in the agricultural economy. Mr. Oppedahl can be contacted at david.oppedahl@chi.frb.org, He invites questions and suggestions which he will address at the NIBA meeting....

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Risk Assessment - FCM Style
Marketing
2 min read

Risk Assessment - FCM Style

Today’s FCMs face not just one risk, but many. Regulatory changes may dramatically alter the business model and viability of some. For other, managing risk associate with outsourcing key operations to 3rd party technology providers poses a challenge. And, of course, the financial risks some FCMs are taking in response to both internal and external pressures to perform are compounded by the current market environment. For over 20 years, Michael Coglianese CPA, P.C. has specialized in providing Introducing Brokers, CTAs and Funds with efficient and timely professional services, including audits, and compliance reviews. Tax preparation is tailored to each client’s specific operation and business strategy with the ultimate goal of developing more profitable business for the end user. Michael’s experience and contacts in our industry have given him a broad perspective on the regulatory, operational and financial risk facing FCMs today, and how they are responding. He will be moderating...

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New NFA Rules: Customer Protection and Others
Marketing
2 min read

New NFA Rules: Customer Protection and Others

Over the past several months, NFA has worked with the industry to develop a number of rules to strengthen the protection of customer segregated funds. We will describe these rules in detail, including the adoption of NFA Financial Requirements Section 16, and steps we are proposing to obtain real-time information from FCMs' depositories. Additionally, the CFTC imposed new requirements under Regulation 1.71, which calls for the development of procedures for all IBs and FCMs relating to research reports. We will discuss some of the common questions relating to this regulation and how firms can comply with the new requirements. Jennifer Sunu is Director of Compliance at National Futures Association (NFA), where she has worked since July 1994. Ms. Sunu’s responsibilities include supervising the Compliance Department in its completion of its core functions, including audits, investigations, and financial surveillance; overseeing the development of enforcement cases; responding to Member inquiries; and informing...

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Rule 1.71 – Pay Attention, It's Now in Effect
Marketing
2 min read

Rule 1.71 – Pay Attention, It's Now in Effect

At the Kansas City Conference we discussed CFTC Rule 1.71, which among other things, applies to conflicts of interests within a brokerage operation. That is to say that the “research” department and the “trading” desks must independently coexist. The genesis of the rule really comes from the securities industry where research departments tout trade recommendations to the brokers who in turn interact with their clients and often suggest the trade. Admittedly, there is some overlap with the commodities world, but not as much as one may suppose leading to a conclusion that trying to replicate this concept in our industry is like comparing apples and oranges. NIBA highly recommends you discuss your duties and obligations under this new rule with your FCM. However, the buck stops with you, the Introducing Broker. If you are sending out trading recommendation materials the consensus at this juncture is to conspicuously label them as...

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Your FCM: Hero or Villain?
Marketing
4 min read

Your FCM: Hero or Villain?

To put it lightly, selecting a futures commission merchant (“FCM”) has become increasingly difficult during the last year. With the failure of MF Global (“MFG”), Peregrine Financial Group (“PFG”), and the missteps of Knight Capital Group fresh in our memories it’s no longer as simple as selecting a name off of a list. It doesn’t matter how low commission rates are, how good customer service is, or if you prefer a different order entry system. The only thing that matters is whether or not investor monies will be available for trading and your business will be around tomorrow. During these trying times what can an individual investor, commodity trading advisor (“CTA”), Introducing Broker (“IB”), or any other market participant do to try and protect themselves from the catastrophic loss of their FCM? Over the last year I have had conversations with individual customers, professional brokers, regulators, politicians, attorneys, and other...

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The Drought of 2012 - What It Means To Your Business
Marketing
2 min read

The Drought of 2012 - What It Means To Your Business

U.S. corn and soybean yields were dramatically reduced by the drought and heat wave of 2012. Hints of the drought began in mid-May as the coverage of subsoil dryness rapidly increased. Drought conditions reached a breaking point in mid-June when it became apparent that unusual warmth dating to November 2011 would continue. Throughout 2012, the Pacific Ocean warmed and the first El Niño event since July 2009 - April 2010 is near-imminent to begin. Although the upcoming El Niño is only expected to be weak or moderate, it decreases the odds for a repeat drought in South America during the upcoming corn and soybean growing season. However, it increases the chance for dryness to exist in Australia when its wheat is particularly sensitive. Recent history and the weakness of the upcoming El Niño limit potential weather implications for the U.S. over the next six to nine months. Our presentation at...

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NFA Aims to Bolster Protection for Futures Customers
Marketing
1 min read

NFA Aims to Bolster Protection for Futures Customers

The National Futures Association's board of directors has approved rules that would require futures brokerage to provide regulators with view-only online access to customers' account information. If the Commodity Futures Trading Commission approves the rules, they will apply to all futures commission merchants. Reuters (8/16), Bloomberg (8/16)  src: FIA SmartBrief   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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Reponse to Feedback | NIBA's Letter to the Membership Regarding PFG’s Bankruptcy,
MF Global Updates
3 min read

Reponse to Feedback | NIBA's Letter to the Membership Regarding PFG’s Bankruptcy,

Subsequent to NIBA’s letter to the membership regarding PFG’s bankruptcy, we’ve had additional in-depth conversations with senior officials at the regulatory agencies and at the PFG trustee’s office. Here is what we’ve learned. 1. There are statutory limitations which restrict the scope of the NFA’s spending, and would seem to prevent the NFA from providing the assurance or adequate security to the PFG trustee which would be similar to what the CME Group provided to the MFGI trustee. Specifically, Section 17 of the Commodity Exchange Act (CEA) sets the standards for registered futures associations. This section was added to the Act in 1974, when Congress created the CFTC. The language of Sec. 17 was, for the most part, lifted from the statute that allowed for the creation of NASD, and there is little legislative history on Sec. 17 in general, and a futures associations’ authority to impose fees in particular....

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