CFTC Rule to Require DCOs to Report Member Firm Client Positions Daily

January 30, 2012

Just some resources as I investigate this rule change and the impact to back-offices from which the reports must be made.

DCOs are derivative clearing organizations, aka clearinghouses.
FCMs are futures commission merchants, aka DCO clearing member firms.
FIA is Futures Industry Association, a futures industry trade group of which Needham Consulting is a member.

FIA has created a small committee of interested parties from DCOs, FCMs and industry consultants to review these rules and determine the best way for DCOs and FCMs to meet the new requirements. I am privileged to be a member of that committee.

CFTC Rule from the Federal Register: Federal Register


(1) Gross margin for customer accounts.

Proposed Sec. 39.13(g)(8)(i) would require a DCO to collect

initial margin on a gross basis for each clearing member’s customer

account equal to the sum of the initial margin amounts that would be

required by the DCO for each individual customer within that account if

each individual customer were a clearing member. A DCO would not be

permitted to net positions of different customers against one another,

but it could collect initial margin for its clearing members’ house

accounts on a net basis.

The Commission recognizes that gross margining of customer accounts

would be a change from current margin practices at certain DCOs.

However, the Commission believes that gross margining of customer

accounts would more appropriately address the risks posed to a DCO by

its clearing members’ customers than margining all of a particular

clearing member’s customer accounts on a net basis. Gross margining

would increase the financial resources available to a DCO in the event

of a customer default. Moreover, with respect to cleared swaps, the

requirement for gross margining of customers’ portfolios supports the

requirement in proposed Sec. 39.13(g)(2)(iii) that a DCO would have to

margin each swap portfolio at a minimum 99% confidence level.

The Commission recently proposed a new Sec. 39.19(c)(1)(iv) under

which a DCO would be required, on a daily basis, to report the end-of-

day positions for each clearing member, by origin.\43\ In connection

with the proposed Sec. 39.13(g)(8)(i) requirement for DCOs to collect

initial margin for customer accounts on a gross basis, the Commission

is proposing to amend proposed Sec. 39.19(c)(1)(iv) to additionally

require a DCO, for the customer origin, to report the gross positions

of each beneficial owner.

Catching Up: CFTC FCM Data in a Post-MF Global World

January 16, 2012

It has been a few months since I took a look at the CFTC FCM Data reports, which list FCM Customer Segregated Funds, Customer Secured Funds (also called 30.7 funds), and other data. As most readers will already know, MF Global flamed out spectacularly at the end of October, and with that collapse it was revealed that somewhere between $600 million and $1.2 billion of Customer Seg money is “missing” from the FCM. The hunt for that money, and the hunt for the perpetrators of this fraud and theft, continues to this day.

(If you don’t know about MF Global’s bankruptcy and scandal, this probably isn’t the blog, much less the blog post, for you.)

As MF Global was falling apart, the customer accounts and what remained of the customer money was divided up among FCMs in good-standing with clearinghouses (mainly CME) and regulators. I was told anecdotally that CME ordered the division of client business among multiple FCMs in a somewhat arbitrary way. For example, some of MF Global’s energy clients were assigned to FCMs that were not terribly active in the energy markets; additionally, MF Global “local” business (individual trader accounts) had to be divided up among the diminishing number of FCMs that continue to clear that business.

In the weeks and months that followed MF Global’s demise, some of the business that was (as I was told) somewhat arbitrarily assigned to FCMs had the opportunity to move to other FCMs in a more orderly manner than in those hectic weeks following the bankruptcy filing. Now that the dust is starting to settle a little bit, it seems like a good time to take a look at the CFTC FCM data in a post-MF Global world.

The source for the CFTC data is here.

The Starting Point

The last known “good” date for FCM data that included MF Global was August, 2011. The September report, which presumably would have included the failed FCM, has MF Global conspicuously missing. So, let’s take a look at August’s report.

fcmdataAugust2011 Sorted By Seg

In August, 2011 the top FCM measured by Customer Seg was Goldman Sachs, at $23.166 billion; second was Newedge at $22.348 billion. JP Morgan, Deutsche and Citi rounded out the top 5.

The next five FCMs were Merrill Lynch, UBS, MF Global, Barclays, and CSFB (USA).

MF Global, at 8th largest FCM in terms of Customer Seg, reported $7.270 billion. As such, MF Global reported 4.27% of all the Customer Seg funds in August, 2011. In contrast, the top 2 FCMs each had more than 13% of all Seg funds, and had nearly 27% among them. The top 5 FCMs comprised 53% of all the Customer Seg Funds reported to CFTC in August, 2011. The total Customer Seg funds reported for August, including MF Global, was $170,185,554,883.

The Most Recent Month

FCM Data Sorted By Seg Nov2011

The most recent month for which CFTC FCM data is available is November, 2011. As stated above, MF Global’s figures were mysteriously omitted from the September, 2011 report, and of course, by the October reporting date, the FCM has collapsed into bankruptcy. In November, Goldman Sachs again topped the list, with $22.299 billion in Customer Seg. JP Morgan was second with $17.597 billion and Newedge had slipped to third, with $17.447 billion. Deutsche and Citi rounded out the top five again.

With MF Global now gone, the next five FCMs are UBS, Merrill Lynch, Barclays, CSFB (USA) and Morgan Stanley.

Total FCM-reported Customer Seg Funds stood at $149,071,676,345, down more than $20 billion from the days before as much as $1.2 billion of customer money vanished from MF Global. I don’t know if that figure is somehow seasonal, but a drop of $20 billion in Customer Seg funds over three months is astonishing to me.

With the top five-or-so FCMs remaining relatively constant in terms of Customer Seg, and a drop of $20 billion overall, the percentages also provide some insight. Goldman now holds almost 15% of Customer Seg Funds (14.95889%). JP Morgan and Newedge are both at almost 12%. The top 5 FCMs hold more than 55% of all Customer Seg funds as of the November reporting period.

I’d be interested to hear what you all think of the numbers-crunching provided here. Do any of these stats/statements stand out to you, as surprising or as expected? Please let me know your thoughts.

SEC FOCUS Report Link

November 30, 2011

I get asked a fair amount these days questions about Customer Segregation rules, especially in MF Globals demise, and the apparently missing customer funds from what are supposed to be sacrosanct Segregated accounts.

When asked, I often have to go looking for the documents themselves, the actual forms.

I’m adding this post, with a link to those rules and forms, mainly for my own future use. But you all can use them too, dear readers. Yes, both of you.

You’re welcome!

Here is the link:

Click here.

Click to access g_secform.pdf

FIA Chicago Golf Outing

September 27, 2011

It was cold. It was rainy. We had a blast and finished three-under-par to boot.

The Needham Consulting group at the FIA-Chicago golf outing. From left to right: Mike Wilkins, Rick Asken, Steve Ishmael. (not pictured = me)

Adding this image of Mike Wilkins’ follow-through on our 16th hole, a par-3 over water. This hole was sponsored by Options Clearing Corp.

Why I’m Glad Facebook Exists

September 7, 2011

Facebook has its detractors, that’s for sure. I’m one of them, quite often. And there is plenty to detest about Facebook, too. The ‘mail’ application is as lame as anything anyone has ever developed. If one were to set out, today, to develop the worst possible Social Medial messaging application, they’d likely come up with something very similar to Facebook’s mail system. And they’d be rightly ridiculed for their effort too, just like Facebook is.

Limits on the number of ‘friends’ – contacts, really – that one can have. Poking. Mafia Wars. Farmville.

Yes, there is indeed plenty to loath about the world’s most popular Social Media site.

But today I write, not to condemn Facebook, but to praise it.

Yesterday was my birthday. I say this not to get more birthday wishes, but to point out something that would never have happened before the advent of Facebook.

I received a lot of very nice birthday wishes and greetings yesterday. Many of them, most even, I would not have received absent Facebook. I heard from friends nearby, some as close as neighbors right here on my street. Other wishes arrived from local friends traveling abroad, from London and Burgenstock, SZ. I heard from old friends with whom I worked years ago, who now live overseas – London again, and even Singapore. I heard from folks as old, even older, than I am. (And that’s saying something!) And I heard from Facebook contacts (children of friends) in High School.

I heard from friends I’ve known nearly all of my 51 years, and I heard from folks I met as recently as last month.

All this made for a much more fun and interesting birthday than I would have had otherwise.

And for that, if for little else, I’m glad Facebook exists.

CFTC Releases FCM Data for June, 2011

August 11, 2011

Today the CFTC released FCM data for June 2011. I sorted the data by Customer Segregated Funds and uploaded that sorted data here: Sorted Data.

As I’ve mentioned before, Customer Segregated Funds is a uniquely U.S.-centric measurement of FCM ‘size’ but I think it is often useful to look at the data this way. It is, after all, the only regulator-required measurement readily available.

A few observations:

First, Newedge leads the pack, again, when looking strictly at Customer Seg Fund. Newedge has a little less that $2 billion more Customer Seg than the Number Two on the list, Goldman Sachs. Newedge has $21.6 billion in Customer Seg; Goldman has $19.6.

It is interesting to me to note that the top 5 brokers (Newedge, Goldman, Deutsche Bank, J.P. Morgan Securities, and Citigroup) collectively have more than 52% of all the Customer Seg Funds reported to CFTC.

Merrill Lynch, UBS, MF Global, Barclays Capital and Credit Suisse round out the top 10 on the list. Along with the top 5 above, these 10 brokers comprise more than 76% of the Customer Seg Funds reported.

Add in the next 5 brokers from the list – Morgan Stanley, ADM, R.J. O’Brien, Prudential Bache, and Merrill Lynch Professional Clearing – and the top 15 names have more than 86% of the Customer Seg Funds reported.

Rounding out the top 20 – ABN Amro Chicago Clearing, RBS Securities, Rosenthal Collins Group, BNP Paribas, FC Stone – and more than 91% of Customer Seg Funds are held at the top 20 brokers on the list.

Also notable: while there are 123 names on the list, only 77 FCMs reported any Customer Seg Funds at all, as of June 30. But of those 77 names, 91% of the Customer Seg funds are held at just 20 FCMs.

Like before, McVean Trading in Memphis is the largest FCM to report Customer Seg Funds ($838 million) that also has no Foreign Secured Funds (aka 30.7 Funds) to report. Morgan Stanley Smith Barney LLC is the largest FCM reporting Customer Seg Funds ($562 million) whose Foreign Secured Funds ($1.9 billion) exceed the Customer Seg.

These are a few of the observations I made when looking over the list. When you look at the list, what tidbit of information leap off the page at you? If anything intrigues you, post it in the comments.

CFTC Proposed Rules: Capital Requirements of Swap Dealers and Major Swap Participants

June 6, 2011

Last Thursday CFTC added to the Federal Register proposed rules for OTC-cleared swaps (as in: cleared by Designated Clearing Organizations (DCOs), like CME and ICE-Trust). This is a long read, but is useful for at least one reason. The link below (pdf) includes a sample Statement of Cleared Swaps Customer Segregation Requirements and Funds in Cleared Swaps Customer Accounts under 4D(f) of the Commodity Exchange Act.

Link is here (pdf). See the very bottom, last page.

This is the 1FR report that Derivatives Clearing Members (DCMs) (or FCMs) must produce. Some DCMs and DCOs call the cleared-swaps funds “Sequestered” to differentiate them from Customer Seg Requirements for regulated futures contracts.

This link will be useful to compliance and regulatory staff at DCMs and FCMs that are, or intend to, clear OTC swaps on CFTC-regulated clearinghouses.

John P. Needham
June 6, 2011

CFTC Releases New FCM Data for February, 2011

April 12, 2011

Usually this shows up in my Inbox but today I got word from industry colleague Mike Wilkins via Twitter that CFTC had released the new FCM Customer Seg Fund and Customer Secured Funds. I’m still looking at this in my Inbox but for now, let’s look at the data.

Here is the report in PDF form sorted alphabetically. The data is as-of February 28th, with a reporting date of March 31, published by CFTC on April 11.

As usual, I like to take the CFTC report in Excel format and sort it by Customer Seg Funds. fcmdata0311 Sorted By Seg. It is sometimes interesting to me to take a look at some points that literally leap off the page.

Example: in the top 25 of FCMs as measured by Customer Seg Funds is McVean Trading, weighing in at 23 on the list. Put another way, they are the 23rd largest FCM in the U.S. as measured by Customer Segregated Funds. Interestingly enough, their Customer 30.7 funds – sometimes called Secured Funds – is zero. McVean is the largest of the U.S.-based FCMs that focuses entirely on U.S. exchange trading. And large McVean is, with more than $800 million set aside for the benefit of their customers.

And look at Newedge at the top, and Goldman right behind, with $30 trillion ed. note: billion and $28 trillion ed. note: billion in Customer Seg PLUS Customer Secured set aside for the benefit of their customers. Newedge has more than $2.5 trillion ed. note: billion dollars more than Goldman in Customer Seg. Enormous for a non-Too Big To Fail entity who received no TARP money.

Nine out of the top ten – comprising (get this) more than $100 trillion ed. note: billion – all use the same back-office system to process their exchange-traded U.S. regulated futures, and thus their Customer Segregated Funds.

When the time comes that CFTC starts requiring FCMs to include Customer Sequestered Money (a CME term that is approaching critical mass in terms of industry-wide acceptance), I’ll be very eager to see where that business lands – specifically, which back-office system users adopt. I have some thoughts on that. Some might call those thoughts ‘strong opinions.’ I’ll save that for a future post, perhaps.

In the meantime, without editorial commentary, here is the same data sorted exclusively by Customer 30.7 (Secured) Funds. It will give you some idea which U.S.-based FCMs have large business lines focused on non-CFTC-regulated exchanges. fcmdata0311 Sorted By 30.7

When the time comes, when my work experience and/or interests lead me that way, I’ll start exploring the FCM Retail Forex Obligation column. For the moment, those figures are outside my area of expertise and interest.

Closing: I’d ask you, readers: what figures from the sorted spreadsheets intrigue you?

A Recipe: Guinness Beef Stew

March 20, 2011

I made this dish last weekend without using a recipe – I never really use one for beef stew, since this is the kind of dish I can make in my sleep. Stews are super easy. This is a basic recipe, but you can add/change/delete ingredients to suit your own needs and taste. For example, sometimes I use leeks instead of onions. This recipe also doubles really easily; just double all ingredients, but you’ll need a pretty large pot.

Okay, here we go then….


2 lb. stew meat

1 large white onion, chopped (about 2 C)

2 C chopped peeled carrots

3 stalks celery, chopped

4 – 6 C Guinness, divided

2 C low-sodium beef broth

Big handful fresh thyme

Vegetable oil for browning the beef

Flour for dredging beef

Cayenne for seasoning flour



2 lb small new potatoes, red or gold

2 C frozen sweet peas thawed (optional)

Chopped scallions and parsley for garnish.

Put a large dutch oven over medium heat. Trim some of the fat from the beef. When the pot is hot, add a couple TB of the oil to the pot. Put a quarter cup flour in a bowl and season it with salt, pepper and cayenne to taste. (Use about a quarter TSP of cayenne.) Dredge half the beef in the flour mixture, shaking off as much excess as you can and put it into the oil in the pot. Don’t touch it at all for at least five minutes, let it brown well on the first side; then turn the meat over to the other side and brown that side too. After you flip the first batch of beef, pour two C Guinness into a frosted pint glass, and take a sip. When the beef is browned on both sides, remove to a clean bowl. Take another sip of Guinness. Dredge the rest of the beef in the flour mixture, brown both sides of that, then remove to the same bowl. (If more oil is needed, add a little and let it get hot.) While the second batch of beef is browning, sip the Guinness and contemplate life in The Olde Country.

When the second batch of beef is done browning, remove it to the bowl and add all the chopped vegetables to the hot dutch oven. (If you think a little more oil is needed, go ahead and add it.) Season the vegetables liberally with salt and pepper, stir the vegetables so they’re all covered w/ oil, cover the pot and cook the vegetables, covered, for about 20 minutes, removing the lid and stirring every five minutes. Meanwhile, drink some more Guinness. After 20 minutes or so, when the onions are well wilted, remove the cover, raise the heat a little, scrape the fond off the bottom of the pot with a wooden spoon into the liquid released from the vegetables, and cook the vegetables 10 minutes uncovered. The vegetables should be pretty well wilted, browned a little and quite soft at this point. Add two cups Guinness to the pot, scrape up any remaining fond in the bottom of the pot, and bring the liquid to a boil. When it is boiling, reduce heat to low, add the beef and accumulated juices back to the pot, add the thyme, and add enough Guinness to cover. If you don’t have enough Guinness left over because you drank it, supplement the liquid with the beef stock. Cover the pot and simmer, stirring every 15 minutes, for one hour.

After 45 minutes, open another bottle of Guinness, pour into a freshly frosted pint glass, and take a sip. Scrub the potatoes, slice in half (or quarters if they are quite large). At the one-hour mark, add the potatoes, cover the pot and cook over low heat, barely a simmer, for another hour and a half, stirring every 15 minutes, and scraping up any more fond that develops on the bottom of the pot.

(If you’re adding sweet peas – I always do! – add them with 15 minutes cooking time remaining.)

After 2.5 hours, give the pot one more stir to release any remaining fond, turn the heat off, and let the stew sit, covered, for 30 minutes. When ready to serve, add 1/2 C chopped scallions and 1/4 C chopped parsley to the stew, reserving some more to garnish when serving.

Ladle the stew into bowls, garnish w/ some chopped parsley and scallions, and serve.

Served best with warm, buttered biscuits or better yet, toasted soda bread slathered with butter.

CFTC Releases January 2011 FCM Data

March 12, 2011

The Commodities Futures Trading Commission – CFTC to the well-initiated – today released Financial Data for FCMs for January, 2011. You can click the link above to get the CFTC data.

I download this report every month when CFTC issues it. I sort the spreadsheet version released by CFTC, choosing to sort by Customer Segregated Funds. This is a uniquely U.S.-centric metric, to be sure, but it is a clear measurement of FCM size.

You can download my sorted version here: fcmdata2011-01 Sorted By Seg

UPDATE: For non-U.S. readers: here is the same data sorted by ‘Secured’ funds, aka 30.7 funds: fcmdata2011-01 Sorted By 30.7

HINT: by either measurement, Newedge wins.