futures brokerage and FINRA/NFA/SIPC

[jedwards]

My friend introduced me to his brokerage firm that he uses that deals in futures. (I don't want to mention the name).

It seems pretty good, but it's not a member of FINRA. It is a member of NFA, however.

Does this matter? What exactly is FINRA as opposed to NFA? Should I be concerned that it's not a member of SIPC as well?

 

[JackR]

Quote from jedwards:


My friend introduced me to his brokerage firm ......

If the firm only deals in futures they only have to comply with NFA. If they do stocks and bonds they must be part of SIPC and are also regulated by FINRA. NFA does not provide any insurance. Futures can actually cost you money if another customer or the firm loses a lot of money and cannot cover it. Search for REFCO here on ET.

I'd suggest you do a bit of web searching. This will get you started -

Financial Industry Regulatory Authority, Inc., or FINRA, is a private corporation that acts as a self-regulatory organization (SRO). FINRA is the successor to the National Association of Securities Dealers, Inc. (NASD). FINRA was formed by a consolidation of the enforcement arm of the New York Stock Exchange, NYSE Regulation, Inc., and the NASD. The merger was approved by the United States Securities and Exchange Commission (SEC). The SEC has nothing to do with Futures, neither does FINRA.

National Futures Association (NFA) is the industrywide, self-regulatory organization for the U.S. futures industry. NFA strives every day to safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities.


Securities Investor Protection Corporation (SIPC). Investments protected by SIPC. The cash and securities such as stocks and bonds held by a customer at a financially troubled brokerage firm are protected by SIPC. Among the investments that are ineligible for SIPC protection are commodity futures contracts and currency, as well investment contracts (such as limited partnerships) that are not registered with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

Jack

 

[jedwards]

Thanks for the info Jack!

I actually did try to read up on all this but I wasn't able to make the distinction between where the various organizations drew the line. But your answer cleared it up for me, thanks!

 

[Optional]

Futures brokers only need to register with the NFA. Refco futures accounts didn't lose money. Only their forex accounts did.

 

[dandxg]

Do a search on NFA and find out if they have an reparations and such http://www.nfa.futures.org/BasicNet/
It's not unheard for larger well established firms to have fines and such, but check what they are for. I called the CFTC and talked to a judge once. He said no one calls even though they can. It's your money. Canadians are more fortunate they are protected by CIPF protection including futures accounts. That said no one has lost money in futures because they are in segregated accounts, so far.

 

[Swan Noir]

I deal with a smaller self clearing firm and have modest sums with them. I like the people and the service but obviously their balance sheet leaves a great deal to be desired.

As an NFA member (but not a clearing member of the CME or the like) they are required to keep customer funds segregated and that is my only protection.

Am I correct to state that in case of fraud that has the funds comingled (and GONE) I am screwed? My read is that I am secure as long as they are honest and segregate ... but otherwise screwed.

Quote from dandxg:

That said no one has lost money in futures because they are in segregated accounts, so far.

 

[dandxg]

Quote from Swan Noir:

I deal with a smaller self clearing firm and have modest sums with them. I like the people and the service but obviously their balance sheet leaves a great deal to be desired.

As an NFA member (but not a clearing member of the CME or the like) they are required to keep customer funds segregated and that is my only protection.

Am I correct to state that in case of fraud that has the funds comingled (and GONE) I am screwed? My read is that I am secure as long as they are honest and segregate ... but otherwise screwed.

You know that's a gray area and a good question. Do you recall the Sentinel Capital Management debacle? http://www.elitetrader.com/vb/showt...ight=sentinel capital management&pagenumber=1 A few of us were a bit nervous about Velocity, but we got our money immediately. I don't think they should have been allowed to put our money in Sentinel were it was co mingled. I can't answer it. The ppl that I know that had money at Refco had to take on accounts at Mann for at least a few months before they could get their money.