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....
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....
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....
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.....
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....
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....
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....
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....
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....
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....