Following high-profile cases of fraud and misappropriated funds at Peregrine Financial Group and MF Global, the Commodity Futures Trading Commission voted this week to approve new regulations,and amend existing rules, to better safeguard money and securities deposited by customers with futures commission merchants (FCMs) and derivatives clearing organizations (DCOs).

Included in the proposal, which will be open for public comment for 60 days after publication in the Federal Register:

A requirement that FCMs hold sufficient funds in secured accounts to meet their total obligations to both U.S. and foreign customers trading on foreign contract markets. FCMs would be prohibited from holding any positions in a secured account other than customers' foreign futures and option positions and associated margin collateral.

FCMs would need to hold sufficient proprietary funds in segregated and secured accounts to “reasonably ensure” that the firms are properly segregated and secured at all times.

FCMs would have to maintain written policies and procedures governing the maintenance of excess funds in customer segregated and Part 30 secured accounts. FCMs would need to obtain the pre-approval of management prior to the withdrawal of 25 percent or more of the excess funds held in segregated or secured accounts if the withdrawals are not for the benefit of the FCMs' customers.

FCMs would provide the CFTC and self-regulatory organizations with daily reporting of segregation and secured amount computations, and issue semi-monthly reporting of the location of customer funds and how they are invested. FCMs and DCOs would also be required to provide the Commission and designated self-regulatory organizations with read-only, direct electronic access to bank and custodial accounts holding customer funds.

FCMs would be required to adopt policies and procedures on the supervision and risk management of customer funds and provide potential customers with additional disclosures addressing firm specific risks.

The CFTC has provided an online set of “Questions and Answers” to offer additional guidance on the proposal.