UPDATE 1-NFA approves new safeguards for customer funds
WASHINGTON Aug 16 (Reuters) - The National Futures Association approved new rules on Thursday to beef up protection for futures customers, one month after a fraud at collapsed brokerage Peregrine Financial Group left a $200 million hole in customer funds.
The new rules, approved by the NFA's board of directors, would require futures brokerages to provide regulators with view-only Internet access to the segregated fund account information of customers.
The NFA, along with CME Group Inc, IntercontinentalExchange Inc and other futures markets, plan to build an automated system that will compare the actual customer funds with daily reports generated by the brokerages, throwing up an immediate "red flag" when any discrepancy arises, NFA spokesman Larry Dykeman said. Dykeman could not say how long it would take to develop the program.
Peregrine Financial Group CEO Russell Wasendorf Sr. fabricated bank statements and other financial reports for years to trick regulators into thinking his firm held tens of millions more in customers funds than it really did, according to a federal indictment this week.
Wasendorf's scheme collapsed in mid-July after the NFA insisted on receiving customer fund information electronically from Peregrine's banks. He was arrested on July 16 and is scheduled to appear before a judge on Friday.
Peregrine marks the second large loss of customer funds in the futures industry in less than a year. The collapse of MF Global last October resulted in a customer fund shortfall of about $1.6 billion. The futures industry has been weighing the new rules since shortly after that loss came to light.
The newly approved requirements will now be sent to the CFTC for approval. A CFTC spokesman declined to comment.
If approved, the rules will apply to all futures brokerages.
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