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Futures Broker Due Diligence Notes post PFG


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Futures Broker Due Diligence Notes post PFG

  #61 (permalink)
 
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 redratsal 
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Big Mike View Post
Link does not work.

Mike

Here https://www.omnimgt.com/CMSVol/CMSDocs/pub_46535/333616_147.pdf

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  #62 (permalink)
FCMReform
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As regulators continue to investigate PFG news is coming out showing that the futures firm had been losing money for years:

https://www.valuewalk.com/2012/09/pfgbest-in-more-trouble-as-liabilities-outweigh-assets/


QUOTE:

"Its financial statement submitted to the court, indicated that the business has been going down since 2010. The company suffered $2.7 million in gross income losses in 2010, $1.2 million in losses in 2011, and $259,000 losses during the six month period of the current fiscal year."


PFG had recorded three straight years of losses. And yet they had just moved into an $18 million glass and steel office complex in Iowa boasting some of the most luxurious office amenities imaginable. But because PFG never had to disclose their losses they were able to give customers the impression that the firm was healthy and growing, when in fact it was sick and contracting. Customers should be aware of this before they open an account. Particularly since there is no insurance for futures or forex.

The CFTC postponed their vote on additional customer protections this week giving traders a little more time to comment.

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  #63 (permalink)
FCMReform
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The National Futures Association has added some additional public financial information on their BASIC search function effective September 1:

NFA's BASIC System - Public Display of [AUTOLINK]FCM[/AUTOLINK] Financial Information



Quoting 
At its August meeting, NFA's Board of Directors determined that certain FCM financial data should be made publicly available on NFA's website to assist customers in their due diligence review of an FCM.

The Board determined that the best way to display this information is on an FCM-by-FCM basis through NFA's BASIC system. Therefore, NFA is adding new sections to each FCM's BASIC page to disclose certain financial related information. Specifically, from each FCM's BASIC page, the public will be able to access three separate FCM Reports - FCM Capital Report; FCM Customer Segregated Funds Report; and FCM Customer Secured Funds Report.


These actions are a step in the right direction. Clearly, regulators believe that public disclosure of FCM financial accounts are beneficial to customers as they conduct their due diligence. It therefore follows that additional financial disclosures (complete disclosure of a FCM's balance sheet for example) would empower traders to an even greater degree.

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  #64 (permalink)
 rickey 
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FCMReform View Post
The National Futures Association has added some additional public financial information on their BASIC search function effective September 1:

NFA's BASIC System - Public Display of [AUTOLINK]FCM[/AUTOLINK] Financial Information





These actions are a step in the right direction. Clearly, regulators believe that public disclosure of FCM financial accounts are beneficial to customers as they conduct their due diligence. It therefore follows that additional financial disclosures (complete disclosure of a FCM's balance sheet for example) would empower traders to an even greater degree.

I'm not seeing the new info on the NFA website, looks like the same-ole info on the Basic page. Can you provide a sample Basic report that shows where this info is located, I'm sure I'm just missing it.

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  #65 (permalink)
FCMReform
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rickey View Post
I'm not seeing the new info on the NFA website, looks like the same-ole info on the Basic page. Can you provide a sample Basic report that shows where this info is located, I'm sure I'm just missing it.

FCMs are required to file the first full monthly report pursuant to Financial Requirements Section 16 by October 23, 2012 for the month ended September 30, 2012. NFA intends to add the FCM Financial Reports to each FCM's BASIC page by November 1, 2012. The semi-monthly information will be updated shortly after the filing of the required semi-monthly financial information and the monthly information will be updated shortly after the filing of the required monthly financial information.

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  #66 (permalink)
FCMReform
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The federal bankruptcy judge in the PFG case authorized a series of initial customer distributions today. PFG Customers to Get Money Back | Fox Business


Quoting 

The first wave of payouts will happen by October 8 and a second wave will occur before October 29, Fishman said.

The Commodity Futures Trading Commission initially raised concerns about the trustee's plan because of uncertainty about the integrity of Peregrine's books. The commission warned that some people could get money they were not entitled to without proper vetting of records.

The fate of PFG's retail forex customers remains in doubt. The CFTC has yet to announce their proposed reforms. Retail forex needs to be a part of these reforms. We're still encouraging traders to contact CFTC at [email protected] to voice their concern.

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  #67 (permalink)
FCMReform
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Reuters has just published an exhaustive two part special report on the fraud perpetrated by Russ Wassendorf. Wassendorf spent tens of millions of dollars on luxury items and in failed business ventures with money stolen from client accounts.

Part One: Special Report: Iowa broker built empire on a lie concealed in a postal box | Reuters

Part Two: Special Report: As Peregrine teetered, founder went on shopping binge | Reuters

One of the most distressing aspects of the fraud is that Wassendorf was nearly caught last year in a routine audit but managed to head off the NFA with a last second fax that allowed him to keep the fraud going for another year. The episode highlights the need for greater auditing and accounting standards, not to mention the need for more financial disclosures for brokers so as to prevent lone wolf CEO's like Wassendorf from hiding the true state of their firm's finances.

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  #68 (permalink)
FCMReform
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The CFTC has released a transcript from the public roundtable that was held in August.
https://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/transcript080912.pdf

While retail forex is absent from the discussion the issues pertaining to FCM’s is of importance to retail forex customers since FCM’s like PFG routinely offer retail forex as part of their suite of products.

One of the arguments against additional financial disclosures for FCM’s is that these disclosures may weaken the fragile, financial health of less profitable FCM’s. Warren Davis of Sutherland, Asbill & Brennan made the following point in response:


"In the case of a FCM, the money that the customer gives the FCM is not for the use of the FCM. It's solely to protect the customer, so it seems to me that the run on the bank analogy is not altogether appropriate here. But what is appropriate is to ensure that customer money is, in fact, used for the only purpose for which it's given which is to secure the customer's obligations to the FCM and the clearinghouse. And therefore, if information is released which causes a customer to move its account from one FCM to another, that shouldn't be viewed as a bad thing. That's sort of the way the futures world is supposed to work."


Unfortunately, that is not currently the way the futures world works. Because FCM’s are able to keep their financials hidden from the public there is no way of truly knowing if the firm traders are doing business with is healthy or unhealthy. The net result is that traders are left to play a guessing game about whether their funds are safe or not.

CFTC has yet to announce when they will unveil their reform proposals.

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  #69 (permalink)
 
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 djkiwi 
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Additional financial disclosure requirements is pointless in my opinion. All this shows is the CFTCs poor understanding of the risks faced by futures traders and the steps required to address these risks. One really needs to question the intellectual horsepower on this committee.

All that matters is the segregated account is correctly monitored daily by the regulator. The PFG situation exemplified poor financial control and monitoring by the regulator nothing more nothing less. This is the area that specifically needs to be rectified. A firm can have the greatest balance sheet in the world but could still be stealing your money or using client assets to collateralize risky bets. If the FCM has net assets of $1m or $100m is neither here nor there. If the money is segregated and monitored correctly it shouldn't matter.

These are the steps that need to happen in my opinion:

1. The regulator does a complete audit of FCMS. This will involve a reconciliation of the ledger with the bank accounts. This will ensure the integrity of the data from day 1.

2. On an ongoing basis, the regulator is alerted for reductions of say 5% of any FCM segregated bank account balance in a single day or other reductions over different time periods. If this threshold is exceeded then the FCM is required to provide documentation supporting this reduction.

3. There are tighter rules on hypothecation and the US federal reserve lobbies its UK equivalent to tighten up the loopholes. The CFTC is only focusing on PFG and segregated account theft. What about the risks from MF Global and Interactive Brokers taking massive bets and using client funds to collateralize these bets? At the very least there needs to be clear disclosure rules on the quantum of client funds used as collateral and the degree of leverage.

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  #70 (permalink)
FCMReform
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The PFG bankruptcy proceedings are turning into a tragedy for PFG's retail forex customers who may now be forced to stand by and watch their funds be used to reimburse customers who traded on-exchange futures with PFG. In response, a group of traders have started a website to try and rally support amongst PFG's forex customers: PFG Forex Metals Legal Account - Home

The Traders who have setup "Forex Metals Account LLC" have also sent out an email to PFG's forex customers updating them on the bankruptcy proceedings: Forums - PFG - What happens if you have accounts with them??


Quoting 

Our Forex and Metals monies are currently intact at JPMorgan Chase Bank and Royal Bank of Scotland as confirmed by the Trustee. You may think that because our accounts are listed in the Trustee’s documents that our accounts are safe. Initially we believed this as well. In fact, if you carefully read thru all the Motions, schedules and documents submitted to the bankruptcy court, nothing could be farther from the truth. Our accounts are at risk of being completely emptied in the current legal proceedings - effectively stealing our money in the next few weeks - and converted to pay Futures account holders and the Trustee’s law firm. We view what may be about to take place as equivalent to criminal theft/larceny. We never in our wildest dreams thought that one man or a group of lawyers could put 100 percent of our accounts at risk, do it openly, publicly, and legally get away with it. The Trustee’s Motions are designed to distribute $123 million to Futures account holders – which was approved in court on 9/20/12 – and will deplete the funds available to Forex and Metals account holders. We need to immediately protect our accounts. If we let the Trustee and the dozens of lawyers representing non-Forex and non-Metals clients take our money without doing anything about it, then we don’t have anyone else to blame but ourselves. We cannot sit idly by and watch our hard earned money be divided between creditors and other customers.

FXCM has been lobbying Congress since 2005 to include retail forex in any bankrupcy prodeeding but we have not had much success due to the hesitancy of Washington to re-open the bankruptcy code on behalf of retail forex customers. In the meantime, the PFG bankruptcy should give retail forex traders pause in regards to opening a retail forex account with a Futures Commission Merchant instead of a Retail Forex Exchange Dealer due to the disparity in treatment the two class of customers are getting in this bankruptcy.

We are also still encouraging traders to contact CFTC at [email protected] to urge greater protections for retail forex traders.

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Last Updated on March 2, 2013


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