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CUSTOMER PROTECTION
How U.S. Regulations Protect Your Funds
Pursuant to the Commodity Exchange Act and Commodity Futures Trading Commission (CFTC) regulations an FCM (FCM), is required to treat all customers' money, securities and other property received to margin, guarantee or secure futures or options trades as customer property. They are also required to account separately for and segregate customer money, securities and property and not to commingle those assets with the FCM’s own operating assets. Customers' segregated assets cannot be used to margin any other person's trades. These segregation requirements apply to futures and options trades on exchanges located in the United States.
How an FCM helps protect Your Funds
In compliance with segregation requirements an FCM must do the following:
- Customer funds are maintained at banks in clearly identified "segregated funds" accounts separate and apart from any other funds of the FCM..
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Each bank signs a written acknowledgment that (i) the segregated funds are held in the account in accordance with the Commodity Exchange Act and CFTC regulations, and (ii) the bank will not hold, dispose of, or use any of the segregated assets for anyone, including the FCM, other than the FCM’s customers.
- The assets of one customer at an FCM are not used to purchase, margin or settle the trades or positions, or to secure or extend credit, of any other customer.
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An FCM can only invest segregated assets in funds guaranteed by the United States or other allowed instruments. Investments may include U.S. Treasury securities, municipal securities, government sponsored agency securities, certificates of deposit or money market mutual funds.
- Segregated assets are only invested through, or deposited in, customer segregated funds accounts.
- FCM’s keep a "real time" record of customer segregated funds and assets.
- Every business day, the total amount of customer assets required to be segregated and the total amount of assets actually deposited in segregated accounts is calculated as of the close of the previous business day.
- Funds of clients trading on foreign exchanges
CFTC Regulations also require an FCM to maintain separate accounts, funds and assets sufficient to satisfy all of its current obligations to customers trading futures and options on foreign exchanges. An FCM, such as ours may not commingle set-aside funds with their own or their proprietary or noncustomer funds or accounts. Additionally an FCM, cannot hold or commingle set-aside funds with those of customers trading on U.S. exchanges
How an FCM protects the funds of clients trading on foreign commodity exchanges
An FCM must maintain set-aside funds in accounts identified as such, as required by CFTC Regulations. Each bank signs a written statement that acknowledges the bank understands of the nature of the funds in the account. As of the close of each business day an FCM computes their total set-aside funds, the secured amount, and the set-aside funds' excess or deficiency.
In general, a bank or trust company located outside the United States, whose commercial paper or long-term debt is rated in one of the two highest rating categories by Standard & Poor's Corporation or Moody's Investors Service, Inc., is recognized by the CFTC as an acceptable depository for set-aside funds. Since the secured amount at all times must be liquid and sufficient to cover all obligations to its customers trading on foreign markets, an FCM’s investment in those funds is consistent with that requirement.
Regulatory Enforcement
The CFTC has consistently taken a stringent enforcement approach to its regulations requiring FCMs, such as ours, to segregate customers' assets. An FCM’s compliance with the CFTC's segregation and related recordkeeping rules is monitored, not only by the CFTC, but also by the "self-regulatory organizations" to which ongoing examination and surveillance of an FCM is delegated. Enforcement penalties resulting from violations of these requirements may be quite severe.
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