The Shocking Truth about 'Segregated' Accounts

Discussion in 'Trading' started by Joovenile Jatt, Nov 3, 2011.

  1. Likely, unjustified paranoia.

    If the firm gets into a "capital account violation" position... they are required to take specified "defensive actions"... to bolster capital and/or at a minimum to protect customer account equity... not a common thing at all.

    In the case of MF Global...

    They apparently made leveraged bets with the firm's capital account.... which went bad. They tried to "ride it out" by committing customer segregated funds to back their play (with a desperate, clear and serious violation of the "customer account segregation rules".. with full intention of restoring customer equity when "the market turned in MF's favor").... but the "turn around" didn't come.. or didn't come in time... and now the mess.

    Yeah, maybe "some" brokers did the same... some out of hundreds/thousands.

    This business with MF is a really, REALLY big deal with the regulators. Everybody in the business knows it. Doubt it has occurred more than a handful of times, reported to be common knowledge or not.
     
    #51     Nov 3, 2011
  2. benwm

    benwm

    Unfortunately I agree that it would be unusual if MF were the only guilty parties. Mandatory prison sentences - 10 years+ for any broker that illegally switched funds from the customer account - that would put an end to it.

    As it is, what is the punishment? None of us know.

    Maybe a judge will take away someone's license and say the guilty individuals can't work in the industry for five years? A nominal fine perhaps? :(

    Indeed, Barclays Capital got hit with a £1million fine by the FSA when they pulled this stunt last year. Is £1m really a deterrant to stop a broker switching $700 million for a couple of days when funding gets tight?! Hardly.

    The deterrant has to clearer, more punitive and set in stone to prevent this type of abuse from happening. Individuals need to be put away, no exceptions.
     
    #52     Nov 3, 2011
  3. benwm

    benwm

    Here is a link to the Barclays Capital fine handed out earlier this year:-
    http://www.fsa.gov.uk/pages/Library/Communication/PR/2011/014.shtml

    26 January 2011

    The Financial Services Authority (FSA) has fined Barclays Capital Securities Ltd (Barclays Capital) £1.12 million for failing to protect and segregate on an intra-day basis client money held in sterling money market deposits.

    Under the FSA’s client money rules, firms are required to keep client money separate from the firm's money in segregated accounts with trust status. This helps to safeguard and ring-fence the client money in the event of the firm's insolvency.

    <b>For over eight years, between 1 December 2001 and 29 December 2009, Barclays Capital failed to segregate client money</b> maturing from its sterling money market deposits on an intra-day basis. Such client monies were segregated overnight but matured into a proprietary bank account and were mixed on a daily basis with Barclays Capital’s own funds, typically for between five and seven hours within each trading day.

    <b>The average daily amount of client money which was not segregated increased from £6 million in 2002 to £387 million in 2009. The highest amount held in the account and at risk at any one time was £752 million.</b> Had the firm become insolvent within the five to seven hours each day in which the funds were unsegregated, this client money would have been at risk of loss.

    Margaret Cole, managing director of enforcement and financial crime, said:

    "Barclays Capital committed a serious breach of FSA client money rules by failing to segregate millions of pounds of its clients’ money for over eight years. This posed a significant risk and the penalty reflects the amount of client money involved in this breach.

    "The FSA has repeatedly emphasised the importance of ensuring that client money is adequately protected and in the past year has taken enforcement action against firms of all sizes for breaches of its client money rules.

    "Adhering to these rules not only ensures greater protection of clients but of financial stability as a whole. The FSA’s specialist client assets unit will continue to intensify its focus in this area."

    In working out the level of the penalty the FSA took into account that the misconduct was not deliberate and that Barclays Capital rectified the situation on discovery. No clients of Barclays Capital suffered any losses as a consequence of the segregation error. Barclays Capital did not profit from, or avoid losses as a result of the breach, nor was there any incorrect financial reporting by Barclays Capital in the period December 2001 to December 2009.

    <b>The firm co-operated with the FSA in the course of its investigation and agreed to settle at an early stage. In doing so it qualified for a 30% discount.</b> Without the settlement discount the fine would have been £1.61 million.
    Notes to editors

    The Final Notice for Barclays Capital is available on the FSA website.
    The FSA’s specialist Client Assets Unit was established to improve compliance with the regulatory regime to protect client assets and to promote confidence.
    On 7 December 2010 the FSA held a briefing on the protection of client money and assets to raise awareness among firms’ senior management and market participants about their regulatory obligations in relation to client assets. The speeches can be found on the FSA website.
    On 18 January 2011 the FSA published a dear CEO letter on senior asset and management liability practices. Last year the FSA published two dear CEO letters; the first letter was published on 21 January 2010 alongside a Client Money and Assets report for all firms that have the permission to hold client money and assets. This was followed up by a further dear CEO letter on 20 May 2010.
    The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
     
    #53     Nov 3, 2011
  4. benwm

    benwm

    Eight years folks!

    And a lousy £1m fine. Anyone sent to prison?
     
    #54     Nov 3, 2011
  5. DT-waw

    DT-waw

    a word about regulators.
    i've seen some in action, first hand.

    the protection and control they seem to guarantee is total bullshit.
    all regulators are just a bunch of poorly paid employees who love to take some serious cash under the table.
     
    #55     Nov 3, 2011
  6. TILT2

    TILT2

    Sooner or later, the big entrepreneurs and bankers will rule the world. Too big to fall......
    I suppose for the past years, things are getting more and more out of control......
     
    #56     Nov 3, 2011
  7. #57     Nov 3, 2011
  8. You know, when people talk about interest on their deposits, it's usually not in the form of taking on enormous fx risks.

     
    #58     Nov 3, 2011
  9. yes, i know.
    usually people suck anyways.

    the side is great to compare the interests.

    Its up to you, how you use it.
     
    #59     Nov 3, 2011
  10. Comparing nominal rates is pretty useless from a 'deposit' point of view, don't you think?

     
    #60     Nov 3, 2011