CFTC’s Segregation Rules: What’s That All About?

Late last year, MF Global, a brokerage whose old school roots date back to the 18th century, filed for bankruptcy. The once-trusted company got into a lot of trouble for mixing its clients’ funds with its own to place bets on European debt.

Although MF Global is now bankrupt and is suspected of misappropriating clients funds of at least $600 million, regulatory agencies such as CFTC ended up taking the blame for being too lenient with their rules.

Naturally, these industry watchdogs didn’t take this matter sitting down. Since the MF Global fiasco, they’ve been looking for ways to strengthen client funds protection. And as a first step, they’re looking at setting a new segregation requirement, which up until this point was unheard of in the forex brokerage scene.

With my ninja stealth skills, I did a bit of eavesdropping and heard that the CFTC’s plans may include a requirement for brokers to keep their clients’ money with custodian banks. This way, the CFTC can ensure that brokers keep their own funds separate from their clients’.

Aside from that, my intel also revealed that a top-secret special committee comprised of representatives from futures industry firms came up with a few recommendations for segregation rules. Among these proposals include requirements for brokers to file regular reports on the amount of client funds they are holding, how these funds are segregated, and where they are invested.

In addition, the committee would also like to perform more frequent spot checks in order to keep track of which firms are complying with the rules. Lastly, they would like a principal of the firm to approve any transactions involving client funds that exceed 25% of the firm’s segregated accounts.

Pretty strict requirements for the brokers, eh? Some industry experts are worried that these additional regulations might be damaging for some forex firms given the cost and complexity of abiding by these rules. In fact, many brokerages are already complaining that the CFTC seems to be shifting from under-regulation to over-regulation these days.

On the other side of the coin, retail traders find this proposed segregation rule very favorable. After all, this funds segregation issue is clearly one of the most important ones when it comes to safeguarding clients’ interests in the forex industry.

Besides, bear in mind that the regulatory agencies such as the CFTC and NFA are simply doing their job to protect us from fraud, manipulation, and abusive industry practices. At the end of the day, when these rules are implemented, traders like you and I might feel more assured that our hard-earned money won’t be misappropriated by our brokers.

  • Les seymourpips

    Why is anybody from MF Global not in jail?Rules with no punishment!I think what the poster below says as some truth to it.When monetary greed out weighs any punishment given its useless.

  • Ttdezo

    CFTC too lenient?  CFTC ‘s real role is to create a smokescreen , to protect banks , brokerages and everybody else except investors.
    System is rotted to the core , small changes will not do any good as long as corporations , banks running the US not the “people”

  • auno45

    Many people are leery about scams, especially when ordering online. The best advice is to visit forex trading forums, read reviews and look carefully at what is said. Do not be put off by one person saying that something is a scam. The best product in the world has at least one unhappy customer who was disappointed because it did not fulfill all of his dreams.

  • Digitalgypsy

    I believe many brokers outside the US already do this…if i’m not mistaken.