Posts Tagged ‘Wasendorf’

U.S. FCM Violations: Customer Segregated and Secured, Minimum Capital Violations

September 27, 2013

UPDATE:Updating, 10/13/2014 with additional CFTC finding in 2014.

UPDATE: I am going to start adding Secured (30.7) violations and FCM minimum capital violations too. I also changed the blog post title. This post still does not include LIBOR violations, nor various precious metal scams, nor simple supervision violations.

Since, alas, it has become so hard to keep track of all the FCM violations of Customer Seg Funds regulations, I decided to create this so I have one place to refer to in the future. Note please that these are only Customer Seg violations, not violations of 30.7 regs nor of Retail Foreign Exchange Dealer (RFED) net capital requirements. Not various and sundry other ponzi schemes, fraudulent precious metal scams, or other violations. These are all just violations of the U.S. Customer Segregation rules and regulations. This post also doesn’t include the many and varied enforcement actions against all the bankers caught up in the LIBOR rip-off/scandal.

Source: Enforcement actions as archived on the CFTC website.

2014
October 8, 2014: Friedberg Mercantile Group (FMG): Firm was under-secured (30.7) in early February, 2013. Friedberg.

September 24, 2014: FXDirectDealer, LLC undercapitalized, under he CFTC’s FCM/Retail FX Dealer adjusted net capital rule requiring a minimum of $20MM. FXDirectDealer, LLC

May 19, 2014: Global Futures & Forex, Ltd., undercapitalized, under he CFTC’s FCM/Retail FX Dealer adjusted net capital rule requiring a minimum of $20MM. Global Futures & Forex, Ltd.

March 27, 2014: Morgan Stanley Smith Barney, under in Secured (30.7) funds and commingling customer and firm funds. MSSB.

2013
September 30, 2013: ADM Investor Services (ADMIS): Ugh. Add ADM to the list. Caught commingling customer and prop accounts in their Customer Seg account. ADMIS This appears to have ended in July 2011 and probably was self-reported.

September 27, 2013: Vision Financial: fined for Seg violations in 2008/09. Vision Financial

September 27, 2013: R.J. O’Brien: an inter-account transfer from Secured (30.7) to Seg, for a non-clearing FCM for whom RJO cleared, put the non-clearing FCM into a Secured deficit. RJO Ops apparently made the transfer to cover a Seg margin deficiency for the omnibus account but never told the non-clearing FCM, nor called the non-clearing FCM for additional funds. R.J. O’Brien

June 19, 2013: ABN Amro Chicago: fined for violations in 2011. ABN Amro

April 9, 2013: Interactive Brokers: the firm “failed to compute on a currency-by-currency basis the amount of customer funds on deposit and required to be on deposit in segregated accounts.” Interactive Brokers

February 19, 2013: Enskilda Futures Limited (EFL), a London-based Futures Commission Merchant (FCM) fined $125,000 for failure to maintain adequate capital after undermargining a proprietary omnibus account. Enskilda

January 3, 2013: Muzuho Securities fined for Secured 30.7 violations. Mizuho Securities

2012
December 3, 2012: MBF: Federal Court Orders MBF Clearing Corp. to Pay $650,000 for Violating Customer Fund Segregation Requirements. MBF judgement

November 21, 2012: Cantor Fitzgerald:operational inadequacies and under seg. Cantor Fitz

October 10, 2012: Farr Financial. (I had somehow missed this one last year. I’d also never heard of Farr Financial before now.) Improper investment of customer segregated funds. Farr Financial

July 10, 2012: Peregrine Financial: the infamous Russ Wasendorf theft of $215 million. Peregrine Financial and Russ Wasendorf.

April 4, 2012: JP Morgan: fined $20 million for using the customer seg funds of a FCM called LBI as “net free equity” covering intra-day credit that JP Morgan extended to LBI over a 22-month period. During the Lehman bankruptcy, when LBI requested JP Morgan to release the customer seg funds, JP Morgan refused because it was using the customer money to cover LBI proprietary credit lines. J. P. Morgan 2012

March 13, 2012: MBF: This is the original CFTC complaint against MBF, settled on December 3rd above. MBF original charges.

New CFTC FCM Data Released (May 2013)

July 16, 2013

http://cftc.gov/MarketReports/FinancialDataforFCMs/index.htm

CFTC just published the May month-end report for FCM Financial Data. The raw link is above. I have sorted the data differently, ad posted the resorted data below.

This is from FCM 1FR reports, or CFTC/SEC FOCUS reports if the FCM is also a broker-dealer. Attached here is the CFTC report sorted by customer assets in Seg, and another version sorted by Customer Seg Required. I believe this is the best metric for measuring the depth and breadth of the U.S. futures industry, much moreso than simple exchange volumes and or FCM trading volumes. To me, trading volume is a good measurement of exchange/clearinghouse health (and revenue, naturally). But for industry health, I think customer assets is a better measurement.

Here is the May 2013 CFTC FCM Data sorted by Seg assets, and…

here is the same data sorted by U.S. Customer Seg Required.

Note that those are both download-able Excel Spreadsheets.

Weird fact: JP Morgan and Goldman are the two biggest FCMs as measured by U.S. Customer Seg amounts. Interestingly, Goldman has higher Seg Required (column J) than JPM, by about $1B. But JPM has more assets in Seg than GS, by about $600MM.

The four largest FCMs – GS ($17.5B), JPM $16.5B), Newedge ($14.3B), Deutsche Bank ($14.1B) – completely dwarf the rest. The 5th biggest FCM – UBS ($8.4B) – has way less than half the Cust Seg Required that Goldman carries.

The largest FCM, measured by U.S. Customer Seg Required, that is also *not* a broker dealer: RJ O’Brien, with $3.7MM in Cust Seg Required.

The largest FCM that has zero required in 30.7 funds (from foreign boards of trade): McVean Trading in Memphis. This means that 100% of their customer positions and assets are on U.S. boards of trade.

The total amount of Customer Seg required across all FCMs is $143.4B. Total Customer Seg assets is $154.5B, so an excess of $11.1B exists in FCM Seg bank accounts.

49.5% of all Customer Seg is carried at the top five FCMs: JPM, Goldman, Newedge, Deustsche Bank, and UBS. Nearly 75% of U.S. Customer Seg Required is carried at the top ten FCMs: the top five above plus Merrill, Citi, Morgan Stanley, Credit Suisse and Barclays.

The total number of FCMs even carrying U.S. Customer Seg balances – meaning the number of FCMs clearing customer business – was 70 in May, 2013. In November 2003 that number was 102, so we’re down more than 30% in FCMs clearing customer business in less than 10 years. In 2003, 102 FCMs reported $67.1B in Customer Seg. May 2013 reports showed $143.4B spread among 30% fewer FCMs.

I would argue that the number of FCMs carrying customer business is really on the only sign of ill-health in the U.S. futures industry. All other signs, especially growth of Customer Seg (and also exchange volumes) point to good health in the futures industry.

I’d be very interested to know what you all have to think about the signs of health in the futures industry, still recovering from MF Global and the Wasendorf fraud. What do these figures mean to you?

U.S. Futures Customers Pulled $10 Billion Out of the Futures Market

September 13, 2012

As many know, the CFTC publishes a list of U.S. futures commission merchants (FCMs) and the amount of customer money they have in their Segregated U.S. Funds bank balances. Today they published the list for month-end July, 2012, to their website.

The CFTC report comes from the FCM’s CFTC 1-FR reports, which are part of the SEC FOCUS report if the FCM is also a broker/dealer in U.S securities. If the FCM is not also a broker/dealer registered with the SEC, then they submit just the 1-FR to CFTC.

Here is the latest report from CFTC: Latest CFTC Report

Here is the same list, sorted by FCMs’ Customer Segregated Funds balances. fcmdata0712-sorted-by-Seg

There is a lot of interesting information and data in the report: RJ O’Brien is the largest FCM in the U.S. as measured by Customer Seg, that is not also an SEC-registered broker/dealer in U.S. securities, for example. Another example: 8 of the top 10 names on the list all use the same vendor back-office system. There are 69 FCMs that reported Customer Seg to SEC and/or CFTC. (There were 71 as-of last October, when MF Global turned on their money vaporizer; there were 70 until Peregrine went down.)

But that’s not the most interesting thing to me. To me, the most revealing thing about the current report is this: In June of 2011, 13 months ago, FCMs in the U.S. reported a cumulative $153,881,560,188.00 in Customer Segregated Funds. (I used the CFTC report from that date to generate this post, where the data was sorted: June 2011 Sorted Data.

Today’s report from CFTC shows a cumulative Customer Seg figure of $143,561,983,577.00.

That means that customers of U.S. FCMs have pulled $10,319,576,611 out of their FCMs in the past 13 months of CFTC reporting.

Even if one assumes that MF Global lost/stole/vaporized $1.6 billion and that Russ Wasendorf at Peregrine stole another $200 million, there is still a full $8 billion-plus that customers of FCMs took out, entirely on their own.

FCM customers have options: ETFs, mutual funds, stocks (with SIPC protection), etc. It looks like many are utilizing the options, and departing the futures industry.