In January 2012, the NFA and CME formed a committee of futures industry SROs to evaluate changes that could be made to rules to prevent customer losses due to the insolvency of an FCM. This committee was comprised of representatives from the NFA, CME, InterContinental Exchange, Kansas City Board of Trade and Minneapolis Grain Exchange. In early March, the SRO Committee proposed four initial recommendations for rule changes and regulatory practices to strengthen current safeguards for customer segregated and secured funds.
The SRO Committee recommended that all FCMs file daily segregation and secured reports, providing SROs with an additional means to monitor compliance with segregation and secured requirements. The reports also provide another risk management tool to track trends or fluctuations in the amount of customer funds firms are holding and the amount of excess segregated and secured funds maintained by the firms.
The SRO Committee also recommended requiring that all FCMs file bi-monthly Segregation Investment Detail Reports (SIDR), which would detail how customer segregated and secured funds are invested and where they are held. Another recommendation would require DSROs to perform more frequent periodic spot checks to monitor FCM compliance with segregation and secured requirements. Currently, FCMs are audited every year by their DSRO and their outside auditor. The periodic spot checks would supplement these annual audits.
The Committee’s fourth recommendation would require a principal of the FCM to approve in writing any disbursement of customer segregated and secured funds not made for the benefit of customers that exceed 25% of the firm’s excess segregated or secured funds and would require the firm to provide immediate notice to its SROs of such an occurrence. This recommendation has been called the “Corzine Rule”, named after MF Global’s former CEO John Corzine. On May 29, 2012, the NFA submitted these and other proposals to the CFTC for approval.