A broker owned by ABN Amro has agreed to pay $1m to settle charges over customer account shortfalls worth tens of millions of dollars, as part of a regulatory crackdown on the futures industry following scandals at MF Global and Peregrine Financial Group.
The disclosure will revive questions about the security of clients’ assets in futures markets. ABN Amro Clearing Chicago was among a handful of brokers to welcome stranded clients of MF Global after its October 2011 bankruptcy exposed a $1.6bn gap in customer funds.
But customer accounts at the Dutch bank’s broker division had a shortfall of nearly $100m 10 weeks before the MF Global bankruptcy, a US regulator disclosed in an administrative order.
Customers trading futures contracts – on anything from interest rates to corn – must deposit margin money with brokers to cover potential losses. Brokers must keep these funds segregated from house funds.
However, the failure of MF Global and a subsequent $215m fraud at Peregrine shook investors’ faith in the sacrosanct nature of margin accounts.
Terry Duffy, executive chairman of CME Group, recently called the events “the worst disaster that ever happened in the industry”.
The charges against ABN follow cases concerning customer funds brought against Interactive Brokers, Cantor Fitzgerald and MBF Clearing.
ABN’s broker division held inadequately segregated or secured funds in customer accounts on four occasions because of “clerical errors” and “a lack of adequate policies and procedures”, the Commodity Futures Trading Commission said. In the most recent instance, customer funds were under-segregated by $97.5m on August 19 2011, according to a CFTC administrative order.
James Koutoulas – chief executive of trading group Typhon Capital Management in Chicago, and a recently elected board member of the National Futures Association industry watchdog – said: “It’s definitely troubling to see so many issues and it kind of shows that a lot of these brokers are not putting in adequate internal controls. If you look at the futures markets, segregation protection is supposed to be the holy grail of investor safety.”
ABN agreed to pay $1m to settle the case without admitting or denying the CFTC allegations. The company said it “detected and voluntarily reported on a timely basis several of the referenced violations” and ensured that sufficient funds were available for its customers.
After MF Global filed for bankruptcy, ABN agreed to accept the accounts of its customers. In a 2011 annual report, ABN Amro Clearing said: “We were pleased that a significant number of clients affected by this incident turned to us to enable a continuation of their trading activities and thank our staff for working tirelessly to be able to accept them smoothly, quickly and without risk.”
The report added: “However, as an outcome, we foresee further regulatory oversight on our business as well.”