Futures Broker Due Diligence Notes post PFG - Reviews of Brokers and Data Feeds | futures io social day trading
futures io futures trading


Futures Broker Due Diligence Notes post PFG
Updated: Views / Replies:21,678 / 112
Created: by djkiwi Attachments:4

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 4  
 
Thread Tools Search this Thread
 

Futures Broker Due Diligence Notes post PFG

  #41 (permalink)
Trading Apprentice
austin texas
 
Futures Experience: Intermediate
Platform: IB/NinjaTrader/IQFeed
Favorite Futures: es
 
Posts: 1 since Aug 2012
Thanks: 1 given, 1 received

I liked IB because of their size and conservative investment philosophy for client assets. I was unaware that they used my money to finance their proprietary trading.

My belief was that segregated funds were segregated. Since my segregated funds can be used legally to finance a proprietary trading venture, I will not trade with any broker who engages in proprietary trading. It makes no sense to assume the risk associated with proprietary trading without sharing in the profit.

The size of IB's proprietary trading operation makes one question whether their brokerage operation is just a means to fund their proprietary trading operation. Instead of operating as a Commodity Trading Adviser that risks client's money and shares the profit with the client, IB operates as a broker, risks client's money in proprietary trading, and does not share the profit with the client. Why would anyone want to place their money in such a situation.


I would like to use someone like TD Ameritrade, that has solid protection for their client's money, as a clearing broker and a smaller innovative FCM like Velocity to execute trades.

Questions:
Does TD Ameritrade do any proprietary trading?
Does Velocity do any proprietary trading?
Can I use Velocity as an executing broker and TD Ameritrade as my clearing broker?
Does all of my money reside with the clearing broker or is some of it under the control of the executing broker?

Reply With Quote
The following user says Thank You to steved for this post:
 
  #42 (permalink)
Trading for Fun
Los Angeles
 
Futures Experience: Advanced
Platform: x_trader
Favorite Futures: Stocks
 
ReaM's Avatar
 
Posts: 127 since Mar 2011
Thanks: 96 given, 95 received

I will finish reading the whole thing later, but thank you for the thread in advance.


Still the best tactics for me would be not making a ton of research but to divide your account into several with different brokers. Three brokers is good. Even two brokers is a good protection.

Even choosing the most safe broker one does not protect himself from black swans where you account cant be paid for some reason. As a person I don't believe in safety, no matter what a salesman tells me. I am as stubborn as a mule maybe even more when it comes to believing anything.

Also, safety of funds is not to be limited to smiliar incident as the PFG one.

Day trading with only one broker with leverage higher than 10:1 is death for sure. When your broker has technical issues and you can't trade and have an open trade or pending orders (take profit and stop losses are not always stored on the server, depending on what and where you trade), you might well kiss your account good bye shall the price explode. It would be foolish in this situation not to have a second broker where you could open an opposite position of similar size for the same price as your pending order. It happened only once to me but it did save me a lot of money.

Closing traders over phone is slowly and can cost you a lot more.

So, having funds divided into several accounts proved useful to me.

Reply With Quote
The following 2 users say Thank You to ReaM for this post:
 
  #43 (permalink)
Identify Evaluate Execute
Mercer Island WA
 
Futures Experience: Advanced
Platform: Ninjatrader/Strategy Desk
Broker/Data: Various
Favorite Futures: TF/NQ/ES/Stocks
 
djkiwi's Avatar
 
Posts: 561 since May 2010
Thanks: 980 given, 1,524 received


@steved


Quoting 
The size of IB's proprietary trading operation makes one question whether their brokerage operation is just a means to fund their proprietary trading operation. Instead of operating as a Commodity Trading Adviser that risks client's money and shares the profit with the client, IB operates as a broker, risks client's money in proprietary trading, and does not share the profit with the client. Why would anyone want to place their money in such a situation.

Because most other options are not very appealing either i.e pick your poison. I mainly use IB for swing trading futures because ninjatrader ATM strategies are from what I can tell correctly handled on their servers. Other brokers simulate ninja strategies on the PC meaning if a stop is triggered during an outage the original targets remain live on the system and are not cancelled. These can be triggered leaving the trader in naked positions. With the Optimus X-trader and AMP-CQG you can at least log in and cancel the orders on their systems. There is no option to do this with AMP-Zenfire. Both options are of little use to me if the outage occurs at 3 am and I'm asleep which is why IB is the preferred vehicle.

Questions:

Quoting 
Does TD Ameritrade do any proprietary trading?

Not to my knowledge, although should be confirmed with them.


Quoting 
Does Velocity do any proprietary trading?

Not to my knowledge, although should be confirmed with them.


Quoting 
Can I use Velocity as an executing broker and TD Ameritrade as my clearing broker?

My understanding is the customer has no option but to accept the clearing broker the executing broker uses.


Quoting 
Does all of my money reside with the clearing broker or is some of it under the control of the executing broker?

My understanding is the only funds that pass to the clearing broker are to cover the day and initial margins. If you close all your positions prior to the close then all your funds will be with the executing broker.

Note these represent my understanding and would recommend you confirm these points with your broker and report back if my understanding is incorrect.

Cheers
DJ


Last edited by djkiwi; August 13th, 2012 at 08:45 PM.
Reply With Quote
 
  #44 (permalink)
Identify Evaluate Execute
Mercer Island WA
 
Futures Experience: Advanced
Platform: Ninjatrader/Strategy Desk
Broker/Data: Various
Favorite Futures: TF/NQ/ES/Stocks
 
djkiwi's Avatar
 
Posts: 561 since May 2010
Thanks: 980 given, 1,524 received

@FCMReform


Quoting 
The CME has serious concerns about the costs involved and has repeatedly expressed their reservations about a SIPC style insurance plan for futures traders who are speculating in the market as opposed to those hedging physical commodities. We'd love to see insurance passed but to date it appears to be an uphill climb.

The costs will likely be prohibitive pushing some of the smaller FCMs out of business unless they can pass on the costs to the trader via higher commission costs.


Quoting 
We believe giving traders the ability to look inside each FCM to judge the financial health of the firm they are doing business with will at least enhance the public's due diligence capabilities. In the case of PFG, there was no way for the public to judge how unhealthy this company was because one CEO had the ability to completely hide all the key financial data.

I'm not sure how this would help or work in practice for a few reasons. Firstly if you look at the MFG situation they were publicly listed with a plethora of financial information available to the trader/public. The massive sovereign debt bet that sunk them was unknown to all and sundry and happened fairly quickly. Even the most astute trader would have had difficulty seeing that one coming.

PFG is no different to AMP, Velocity, Mirus etc. They are private companies with owners also able to hide financial data. We know all of these firms are financially weak given their minimal net assets listed on their financial disclosure statements.

These issues are often hard to quantify before it is too late. For example, in a former consulting role I used to write investment mandates for very large pension funds. I remember an instance whereby one of their fixed income managers took a very large duration bet that significantly exceeded the benchmark in the mandate. I only picked this up 3 weeks later analyzing their portfolio asking why they performed so poorly during the month relative to their other fixed income managers. I was able to quantify the loss and they had to pay back the customer. The point is I only found out about this well after the event and if the bet had been much larger it could have sunk them.


Cheers
DJ

Reply With Quote
 
  #45 (permalink)
 Vendor: www.fxcm.com 
New York/NY
 
Futures Experience: None
Platform: Ninja
Favorite Futures: Forex
 
Posts: 45 since Aug 2012
Thanks: 0 given, 38 received


djkiwi View Post
@FCMReform



I'm not sure how this would help or work in practice for a few reasons. Firstly if you look at the MFG situation they were publicly listed with a plethora of financial information available to the trader/public. The massive sovereign debt bet that sunk them was unknown to all and sundry and happened fairly quickly. Even the most astute trader would have had difficulty seeing that one coming.

DJ


You make some excellent points DJ. MF Global's demise is proof that there is no magic bullet to prevent FCMs from failing. However, some customers were able to get out in time as MF Global's financial predicament became public in the weeks leading up to the bankruptcy filing. That's little comfort to the majority who were rapidly overtaken by events, but it is in stark contrast to PFG which went under without any warning whatsoever. Public disclosure of financials clearly could have made a difference with PFG.

Reply With Quote
 
  #46 (permalink)
 Vendor: www.fxcm.com 
New York/NY
 
Futures Experience: None
Platform: Ninja
Favorite Futures: Forex
 
Posts: 45 since Aug 2012
Thanks: 0 given, 38 received

Highlights: CFTC Roundtable on PFG

Last Thursday the CFTC held a public hearing to determine what steps should be taken to repair the damage done by the bankruptcies of PFG and MF Global. I’d like to share with everyone some of the highlights of the hearing:

Better Accounting Standards: There was much discussion of auditing standards for both Regulators of FCM’s and the CPA’s who audit FCM’s. There was general agreement these standards need to be raised. FXCM believes FCM’s should be required to use a top accounting firm to avoid the kind of accounting issues that plagued PFG.

Additional Disclosure Requirements: An extensive discussion on FCM transparency was held and it is clear that FCM’s are going to have to make more disclosures of their books to regulators and to the public. The question is how much is to be disclosed? On the one hand there was testimony from FCM’s like Vision who publish their balance sheet on their website and on the other hand were those who were concerned that too much disclosure could lead to possible “bank runs” by investors. FXCM believes investors should be able to see a company’s audited financial statement once a quarter. Too many investors are forced to fly blind when they choose a Futures Commission Merchant or Forex Dealer. No trader should be subjected to this kind of risk post-PFG.

Insurance: Commissioner Bart Chilton released his proposal for a futures insurance fund on the same day of the hearing. Towards the end of the Roundtable the topic turned to insurance and John Roe of the Commodity Customer Coalition once again made a forceful case for a fully insured fund for the futures industry. As of now, Commissioner Chilton’s proposal does not include retail forex, but there is no reason that it shouldn’t. FXCM supports insurance for the futures/forex industry.

The CFTC will now deliberate into October before announcing their proposals.

Reply With Quote
The following 2 users say Thank You to FCMReform for this post:
 
  #47 (permalink)
Identify Evaluate Execute
Mercer Island WA
 
Futures Experience: Advanced
Platform: Ninjatrader/Strategy Desk
Broker/Data: Various
Favorite Futures: TF/NQ/ES/Stocks
 
djkiwi's Avatar
 
Posts: 561 since May 2010
Thanks: 980 given, 1,524 received

@FCMReform


Quoting 

Public disclosure of financials clearly could have made a difference with PFG.

Actually, I doubt this would have made any difference as PFGs public disclosures would have been based on falsified financial data. Bear in mind they had audited financial statements. They could have released these publicly but they would have been false.

For FCMs not involved in prop trading the financial strength of the FCM is neither here nor there as they have no legal right to do anything with customer funds except keep them in a segregated account.

All that matters for non-prop FCMs is whether the funds are correctly segregated and the monitoring mechanisms are in place to make sure they are segregated. You could still have a firm financially sound and stealing your money.

What needs to happen in my opinion is the regulator must check balances electronically daily provided by the bank. The problem is the bank balances need to be reconciled to the ledger balances provided by the FCM which of course could be falsified. In this case the regulator should enforce two company officers being responsible. One person for preparation of the information and the another for verification. These company officers would have severe penalties if they falsified any documents.

For firms involved in prop trading this is another matter totally and they should have strict reporting requirements on the amount of customer funds used for hypothecation so the trader can make an informed decision on the overall risk. Take IB for example, their hypothecation activities are buried in their balance sheets in inter-company transactions with their UK subsidiary. Who would know that unless there was a requirement to disclose.

Cheers
DJ


Last edited by djkiwi; August 15th, 2012 at 08:00 PM.
Reply With Quote
The following user says Thank You to djkiwi for this post:
 
  #48 (permalink)
 Vendor: www.fxcm.com 
New York/NY
 
Futures Experience: None
Platform: Ninja
Favorite Futures: Forex
 
Posts: 45 since Aug 2012
Thanks: 0 given, 38 received

The Case for Public Disclosure

Hi DJ,

Just read a very interesting comment letter to the CFTC by James Gellert of Rapid Ratings I thought I'd share with everyone:

Mr. Gellert makes the following comment about the benefits of FCM’s being required to disclose their audited financials:


Quoting 
Would Mr. Wasendorf have been as ready to invent financials if his customers had demanded full, audited balance sheets and income statements all along? Would Mr. Wasendorf have been able to compose such reports with sufficient skill as to withstand rigorous third-party examination over twenty years? Rapid Ratings recalls that, by applying large numbers of interrelated calculations to the published reports of Enron, our firm was able to detect vivid inefficiencies entirely inconsistent with the investment grade ratings that Enron enjoyed from the larger rating agencies – inefficiencies that later turned out to have been the result of commingling accurate and fabricated reporting lines.

Mr. Gellert’s point about the difficulty of forging financial documents using the kind of standards that publicly traded companies use is well taken. Had PFG been forced to use such standards Wasendorf’s scam would have likely been caught long before July of 2012. Furthermore, ratings agencies like Rapid could break down the data in a manner that average investors could more easily understand. Although, we disagree that only ratings agencies be allowed to see such data. We believe any trader who opens an account with a FCM or Forex Dealer should be able to judge for themselves a firm’s financial health.

Reply With Quote
The following user says Thank You to FCMReform for this post:
 
  #49 (permalink)
Site Administrator
Manta, Ecuador
 
Futures Experience: Advanced
Platform: My own custom solution
Favorite Futures: E-mini ES S&P 500
 
Big Mike's Avatar
 
Posts: 46,238 since Jun 2009
Thanks: 29,350 given, 83,169 received

Source: It?s About Time - NFA Goes Real Time With Segregated Account Supervision | Forex Magnates


Quoting 
The NFA just approved a new rule that will improve its supervision of customer segregated accounts at FCM’s. Under the regulation, the NFA will require FCM’s to provide view-only access of account information for segregated funds. Such oversight would have been able to prevent the PFG Best fraud. In that case, the NFA was notified of the dollar amounts being deposited in segregated accounts, but didn’t confirm the actual deposits with the custodian banks until several days later.

With the new rule, the NFA will have real time access to assess if the figures from broker filings are correct. They will also be able to monitor ongoing activity to raise immediate questions directly with the broker in the event of seeing something suspicious.

The NFA also stated that it plans to expand the current rule to include receiving daily reports from FCMs of customer activity which will be used to cross check the deposits of segregated client funds. The rule now goes to the CFTC for approval.

NFA’s Board of Directors approves rule to enhance the customer segregated funds protection regime

August 16, Chicago – The Board of Directors of National Futures Association (NFA) today approved amendments to NFA Financial Requirements that will require each futures commission merchant (FCM) to provide its Designated Self-Regulatory Organization (DSRO) with view-only access via the Internet to account information for each of the FCM’s customer segregated funds account(s) maintained and held at a bank or trust company. The same requirement would apply to the FCM’s customer secured account(s) held for customers trading on foreign futures exchanges.

In addition, the rule states that if a bank or trust company is unable to allow the FCM to provide its DSRO with view-only full access via the Internet, the bank or trust company will not be deemed an acceptable depository to hold customer segregated and secured accounts.

“Under this rule, DSROs will be able to check any customer segregated and secured bank account balance for any FCM any time, without asking the firm or the bank, and compare those balances to the firm’s daily segregation report,” said NFA President Dan Roth. “This is one step in a series of initiatives the Board is working on.”

NFA intends to expand this approach, once it is implemented, to receive daily reports from all depositories for customer segregated and secured accounts, including clearing FCMs. NFA plans to develop a program to compare these balances with those reported by the firms in their daily segregation reports. The system will then generate an immediate alert for any material discrepancies.

The rule was developed by the SRO Committee formed shortly after the demise of MF Global. The committee, comprised of representatives from NFA, CME Group, the InterContinental Exchange, the Minneapolis Grain Exchange and the Kansas City Board of Trade, has made several recommendations for rule changes that have already been approved by NFA’s Board in May and by the CFTC in July.

“Early on in its deliberations, the committee recognized that we need to make better use of technology to monitor firms for compliance with segregation requirements,” said Roth.

The newly approved requirements will now be sent to the CFTC for approval.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

Reply With Quote
The following 5 users say Thank You to Big Mike for this post:
 
  #50 (permalink)
Identify Evaluate Execute
Mercer Island WA
 
Futures Experience: Advanced
Platform: Ninjatrader/Strategy Desk
Broker/Data: Various
Favorite Futures: TF/NQ/ES/Stocks
 
djkiwi's Avatar
 
Posts: 561 since May 2010
Thanks: 980 given, 1,524 received


@FCMReform

Thanks for posting that. A couple of comments:

Frankly, after reading that I'm not sure Mr. Gallert really understands the issues. All this looks like is marketing to me. For example, I use AMP as a broker. Their net assets are a reported $800k and they do not engage in prop trading. The issue is not applying fancy formulas but whether the funds are segregated. If AMP went bankrupt tomorrow it is irrelevant to me provided the funds have been segregated and constantly and accurately monitored by the regulator.

All Gallert is suggesting is loading up the FCM with additional unnecessary auditing costs. The auditing needs to focus on segregation nothing more and nothing less in my opinion.

Secondly, MFG was a publicly listed company and what good did that do. I agree prop trading firms like that need more stringent requirements. The important point here is disclosing the percentage of the customers funds leveraged and the extent of the exposure. Any material changes to their net derivatives exposure should be reported to the regulator daily.

I also think the Fed needs to put some heat on the UK governing authority to put some limits in the hypothecation of client funds. Bear in mind the reason MF Global went down the toilet was because unlike the US, the UK had no limits in place. They sent client US client funds to their UK subsidiary and went on a sovereign debt spending spree.


Cheers
DJ


Last edited by djkiwi; August 17th, 2012 at 08:13 PM.
Reply With Quote
The following user says Thank You to djkiwi for this post:

Reply



futures io > > > > Futures Broker Due Diligence Notes post PFG

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Adam Grimes: TBA

Elite only

NinjaTrader: TBA

Dec 7

Linda Bradford Raschke: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Recommend futures, options Broker? sam1197 Reviews of Brokers and Data Feeds 17 March 27th, 2013 01:42 AM
SPI(SFE) Futures Broker tspencer Reviews of Brokers and Data Feeds 26 September 12th, 2012 06:38 PM
Best futures broker for swing traders? muscleman Reviews of Brokers and Data Feeds 4 June 24th, 2012 08:57 PM
What is best broker for intermediate term futures trader? muscleman Reviews of Brokers and Data Feeds 11 April 17th, 2012 04:02 PM
Futures Broker v CFD Provider for trading futures rcampbell Reviews of Brokers and Data Feeds 3 January 5th, 2012 01:53 PM


All times are GMT -4. The time now is 01:40 PM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-11-21 in 0.18 seconds with 20 queries on phoenix via your IP 54.158.214.111