Dan Roth: Working on rebuilding confidence

With the futures community still reeling from the MF Global debacle, the PFG fraud sent tremors through an industry that could no longer call MF Global a one-off event. In the middle of the storm was the National Futures Association (NFA), PFG’s self-regulatory organization. The NFA had escaped much of the blame that swirled following MF Global, but the PFG fraud raised questions regarding its competence and the function of self-regulatory organizations. Futures sat down with NFA President and CEO Dan Roth to discuss the improved safeguards in response to MF Global and PFG to keep seg funds safe and restore public confidence in the industry.


Futures Magazine: What changes did the NFA institute in the aftermath of MF Global to better protect customer funds?

Dan Roth: After MF Global we formed two committees: A committee of [self-regulatory organizations (SROs)] with the CME and a special committee of our public directors. The first rule changes that came out had to do with trying to impose safeguards regarding firms’ use of excess segregated funds to guard against an inadvertent use of excess funds that ends up costing customers money. We had a whole set of rule changes regarding immediate notification to regulators if the firm draws down its excess by a certain amount along with authorizations for that drawdown by principals of the firm, [as well as] certifications by the firm that they remain in seg compliance. The second thing we worked on … is to try and ensure greater transparency about [futures commission merchant (FCM)] financial information for customers. We will have posted on websites information about how customer segregated funds are being invested. That information was previously filed with regulators, now it also will be posted on our website along with other financial data from the FCMs regarding their capital requirements, their excess capital and their seg requirements, and their excess seg and whether they [engage in] proprietary trading and a raft of information. So in the immediate aftermath of MF Global the initial focus of those two committees was greater transparency of FCM financial information and additional protections regarding the ability of firms to draw down their excess funds.

FM: Have you reaped any tangible benefits from those changes?

DR: The FCM transparency issue was approved in July and that data will be posted on the NFA web site on Nov. 1. The rules regarding drawdown of excess funds have been in effect since Sept. 1.

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