I think segregation of funds is more thorough than the financial solvency of one FCM. In the event of such failure, usually customer funds are also protected by larger networks.
Anyway, this is an interesting story about undersegregation of FCMs and some reporting requirements. From a CFTC internal publication (see for more info: http://www.cftc.gov/foia/fedreg98/foi980827b.htm):
1. Proposal
FCMs occasionally have become undersegregated as a result of market
movements which cause deficits in the accounts they carry on behalf of
their customers. Generally, the undersegregated condition is discovered
as a result of the segregation calculation, which under Commission
rules is required to be completed by noon on the business day following
the day of the market movements. Most FCMs are able to avoid any
undersegregated condition which might have occurred on the same
business day for which the segregation calculation is made, using
proprietary funds or through collection of deficits by wire transfer
arrangements made with customers. However, this is not always the case.
During the market downturn on October 27, 1997, the Commission was made
aware that a few FCMs experienced undersegregation to a degree that
they were unable to make up the shortfall from their own internal
proprietary funds. Infusions of external capital were required in those
cases to correct the undersegregated conditions. The Commission is also
aware that, in at least one case, an FCM was aware that it was
undersegregated as of the close of business on October 27, due to
losses in the accounts of a single customer. Further, this FCM was
aware on October 27 that it was likely this customer would default in
its obligations to the FCM and that, as a result, the FCM would be
undersegregated. Further, the FCM also knew that it did not have
sufficient proprietary funds within the firm to correct the
undersegregated condition. As explained further below, the Commission
was notified on or about the close of business October 28--at least one
day after the FCM was well aware of the situation.
Anyway, this is an interesting story about undersegregation of FCMs and some reporting requirements. From a CFTC internal publication (see for more info: http://www.cftc.gov/foia/fedreg98/foi980827b.htm):
1. Proposal
FCMs occasionally have become undersegregated as a result of market
movements which cause deficits in the accounts they carry on behalf of
their customers. Generally, the undersegregated condition is discovered
as a result of the segregation calculation, which under Commission
rules is required to be completed by noon on the business day following
the day of the market movements. Most FCMs are able to avoid any
undersegregated condition which might have occurred on the same
business day for which the segregation calculation is made, using
proprietary funds or through collection of deficits by wire transfer
arrangements made with customers. However, this is not always the case.
During the market downturn on October 27, 1997, the Commission was made
aware that a few FCMs experienced undersegregation to a degree that
they were unable to make up the shortfall from their own internal
proprietary funds. Infusions of external capital were required in those
cases to correct the undersegregated conditions. The Commission is also
aware that, in at least one case, an FCM was aware that it was
undersegregated as of the close of business on October 27, due to
losses in the accounts of a single customer. Further, this FCM was
aware on October 27 that it was likely this customer would default in
its obligations to the FCM and that, as a result, the FCM would be
undersegregated. Further, the FCM also knew that it did not have
sufficient proprietary funds within the firm to correct the
undersegregated condition. As explained further below, the Commission
was notified on or about the close of business October 28--at least one
day after the FCM was well aware of the situation.
