Notice to Members I-14-09 April 2, 2014 FinCEN Issues an Advisory on the FATF-Identified Jurisdictions with AML/CFT Deficiencies On March 25, 2014, the Financial Crimes Enforcement Network (FinCEN) issued an advisory announcing that the Financial Action Task Force (FATF) had updated its list of jurisdictions with strategic anti-money laundering and counter-terrorist financing (AML/CFT) deficiencies. NFA Member FCMs and IBs should review this Advisory to ensure that their AML programs have the most current information on FATF-identified jurisdictions with AML/CFT deficiencies, and revise their AML programs accordingly. A copy of the Advisory is available through FinCEN’s website....

Peregrine Financial Group Inc.’s trustee agreed to settle a dispute with JPMorgan Chase & Co. in a deal that will bring more than $15 million to creditors of the commodities firm, which filed for bankruptcy after its founder looted client accounts. Read full article at Business Week. ...

New recording requirements went into effect in January. Although some IBs are exempted, many are not. The NIBA has opposed this requirement from its beginnings, noting that enforcement is difficult — if not impossible, it requires new expenses for many offices, and requirements for recording of transactions vary greatly from state-to-state. We want to revisit this issue with the CFTC. Will you send us a note explaining how the requirement is affecting you? Please include additional costs (equipment, legal advice, extra staff, etc), you have expended and expect to spend to stay in compliance; and, other issues you are running…...

As the world’s investors become more sophisticated, the quest for portfolio diversification using more advanced strategies is growing.  Investors from Wall Street to Main Street are seeking to include strategies that give them a low correlation to the stock market. Managed futures is an ideal asset class to fill this niche, providing good opportunities for market professionals such as Introducing Brokers to expand their business to include managed futures products for their client base.  Clarke Capital Management (CCM) has found this to be an effective business model. Founded in 1993, CCM offers six different managed account programs with the longest…...

CFTC CFTC Adopts Rules Regarding Risk Management Programs for FCMs New CFTC Regulation 1.11 imposes specific risk management requirements on FCMs that accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result from soliciting or accepting orders for the purchase or sale of any commodity interest.  In accordance with the new regulation, each FCM is required to establish, maintain, and enforce a system of risk management policies and procedures designed to monitor and manage the risks associated with the activities of the FCM, taking into account market,…...

Recent changes to FINRA’s suitability rule may have implications for the futures industry. The futures industry has never had a suitability rule. In 1978, the U.S. Commodity Futures Trading Commission (CFTC) considered adopting one but decided against it, opting instead to impose on a Series 3 broker a robust duty to disclose the risks and let the customer decide whether to engage in futures trading.1   When the NFA adopted Compliance Rule 2-30, it followed the CFTC’s lead: “Once … the customer has been given adequate disclosure, the customer is free to make the decision whether to trade futures and…...

The Commission is currently asking for comments on a proposed rule change. They wish to add a section to require that each person registered as an IB, CPO or CTA become and remain a member of a registered futures association, such as the NFA. Under CFTC Reg. 4.14(a)(9) a person is not required to register as a CTA if it does not: (i) direct any client accounts; or (ii) provide commodity trading advice based on, or tailored to, the commodity interest or cash market positions or other circumstances or characteristics of particular clients. This exemption from registration primarily applies to…...

Around this time last year the Commodity Futures Trading Commission (“CFTC”) made major changes to Regulation 1.35(a) which will be taking effect on December 21, 2013. Perhaps the most widely discussed component of the CFTC’s recent amendments is the obligation of certain Futures Commission Merchants (“FCMs”), Registered Foreign Exchange Dealers (“RFEDs”) and Introducing Brokers (“IBs”) to tape record all oral communications concerning quotes, solicitations, bids, offers, instructions, trading, and prices that lead to the execution of a transaction in a commodity interest. The rule also includes an obligation to record oral communications related to cash or forward transactions (as defined…...

Quotes from around the Industry This will push small retail traders to competing products. –Kurt Johnson, ADMIS It will cost me business because I now pay for some customers quote platforms. I simply cannot afford to do this with the new proposal. –Steve McWhorter President, McWhorter & Mathers Financial Services Please don’t raise the fees. We are a small IB that is barely hanging on as it is with all the new regulations. Pretty soon IB’s will be a thing of the past. –Dave Janson, President, Strategic Farm Marketing Ag customers will rely more on alternate products to manage risk…...

CFTC Regulation 1.73 affects IBs and FCMs that execute orders for customers. Thus IBs who execute give-up orders and bunched orders must adopt risk management procedures. This new regulation has been in existence since June 2013.  1.73 came about from Dodd-Frank and requires clearing FCMs and executing firms to establish risk based limits for customer and prop accounts based on position size, order size, margin requirements, etc. It also requires the clearing FCM that is not serving as the executing firm to enter into an agreement that requires the clearing FCM to establish risk based limits for the customer and…...