New disclosures will let hedgers know more about the use of their collateral.
The National Futures Association will make certain financial information about its futures commission merchant members available through its “Basic” database. Hedgers who use the futures markets and who wonder what their FCMs are up to with the collateral they post can type in their FCM’s name and find out the following:
- FCM Capital Reports
- FCM Customer Segregated Funds Reports
- FCM Customer Secured Funds Amount Reports
- FCM Cleared Swaps Customer Collateral Report
According to a blog post by Andrew Cross of Reed Smith, “…These reports include a breakdown of the manner in which an FCM is investing its customer property (i.e., by type of investment, cash, government securities, money market funds, etc.).”
The rules are particularly germane to treasurers who plan to use standardized and centrally cleared swaps, since for all but the biggest companies, the FCMs will intermediate those.
This information is being provided as part of the requirements of the Commodity Futures Trading Commission’s consumer protection rules, which it overhauled in November, according to Cross. The overhaul did the following:
- Amended and enhanced the customer protection regime
- Imposed risk management requirements on FCMs
- Provided the CFTC with “Early Warning” notices, if an FCM has material operational or financial change
- Imposed additional liquidity requirements on FCMs
- Revised FCM examination process by SROs and auditors 6) Enhanced risk disclosures to customers