CTFC Passes Rules Designed to Help Spot Trouble at Brokerages

Federal regulators on Thursday approved early-warning reporting rules designed to improve ways of detecting signs of financial trouble in futures brokerage houses.

The Commodity Futures Trading Commission said the rules aim to enhance the ability of it and futures exchanges to assess risk and take steps to prevent problems in one firm from affecting the marketplace.

“We want to get advance notice of potential problems so we can step in right away to prevent a real crisis from developing,” said Lawrence Patent, a CFTC lawyer.

The rules, which take effect 30 days after publication in the Federal Register, also harmonize the agency’s standards with those of the Securities and Exchange Commission.

In other action, the CFTC proposed rules to prevent any conflict of interest from affecting decisions of self-regulatory organizations, such as exchanges under its oversight, particularly during market emergencies.

It also approved rules for beefing up ethics training regulations.

Under the new early-warning reporting rules, all futures brokerages are required to report a reduction in net capital of 20% or more within two business days. They also must report a planned cut in excess adjusted net capital of 30% or more two business days before the reduction is made.

The rules will apply to all firms, not just to those previously covered by CFTC risk assessment rules.

In addition, the rules also require fast reporting of margin calls--those issued to clients who trade partly on funds lent by a firm--under certain situations.

Other requirements call for raising the minimum amount of a firm’s adjusted net capital.