September 10, 2012
Ira Bodenstein, Trustee for PFG Best
By Email Only - ibodenstein@shawgussis.com
Mr. Bodenstein:
I write on behalf of the National Introducing Brokers Association (NIBA). Founded in 1991, the NIBA is a membership association of futures and options professionals registered primarily as Introducing Brokers (IBs).
I write with regard to a specific distribution method your office proposed last week in the Peregrine Financial Group (PFG) bankruptcy, Docket Document #147: a proposal to make a bulk transfer of futures customers accounts with an interim distribution of funds, all to a qualified “acquiring FCM.”
It seems to us that the time for a bulk transfer has come and gone. Had it happened immediately on or about July 10, 2012, when PFG filed for bankruptcy, customers might have continued to trade, and the terrible situations in which many of the IBs who did business with PFG now find themselves, might have been prevented. But now, two months later, customers have been forced to the sidelines, and their IB brokers are suffering financial hardship - several have even had to shutter their businesses.
Further, it would appear from the plan laid out in Docket Document #147, that an acquiring FCM would only be buying a lead list at this point - names and phone numbers of clients whose IBs previously cleared with PFG. There are no open positions and the equity, the subject of the Interim Distribution, is the result of the liquidation carried out by Jefferies, PFG’s clearing FCM. Clients who wished to continue to trade after their accounts were liquidated, have generally taken one of three courses: 1) followed their IB to a new FCM, and are trading with new money or waiting for their distribution check to get back into the markets, or 2) opened a new account at a new FCM with or without a new IB, or 3) staying out of the markets altogether.
While it is not the NIBA’s intent to tell any potential acquiring FCM how to do business, we fail to see how this lead list would even be valued. FCMs who saw the possibilities in the IBs and their customers, formed clearing relationships two months ago. Customers who will now be contacted by the lead list-acquiring FCM are either already situated with their broker and FCM of choice, or have been very badly mistreated and would probably not welcome a solicitation call. It could very well add to the confusion surrounding this entire mess.
Selling what amounts to a lead list may marginally increase the total pot of assets for distribution. But it is disrespectful of both the client and the IB. Further, it may cause even more financial harm to IBs by luring customers in to the lead list-acquiring FCM and away from the IB who initially solicited and serviced the account.
Introducing Brokers, a registration category created by the NFA with the support of the FCM community in 1984, are the field sales force of the futures and options industry. IBs add value by providing research, information about cash markets and face-to-face contact with the client.
In the aftermath of MF Global’s collapse and now PFG, IBs are struggling to repair and hold on to relationships formed with clients, often over several years time, and to help those clients who want access to the marketplace. Some have literally held the hands of a client waiting for a distribution check. Many have cut back on personal expenses, and even furloughed employees so they could stay in business. IBs are working to rebuild confidence and trust in the futures and options industry. Hope of even a small cash distribution helps to make this situation a little better, but the proposal to sell client investment information to a lead list-acquiring FCM will do little to aid the client, IBs or the industry as a whole.
The NIBA encourages you to promptly make the interim distributions as described in Docket Document #147 directly to futures customers by check and/or wire transfer without further delay. If you elect to ‘bulk transfer’ to an acquiring FCM, the NIBA requests that names and other information of prior PFG clients who have subsequently continued their relationship with their IB and are now accounts trading through an FCM chosen by themselves and their IB, be removed from the list prior to any sale to any acquiring FCM.
Please do not hesitate to contact me if you have any questions, or if the NIBA can be of further assistance. Thank you.
Regards,
Melinda Schramm
Melinda Schramm, Chairman
NIBA
melinda@futuresrep.com
www.theniba.com
cc: NFA, CFTC