The Futures Industry Association’s Operations Division issued a new publication to assist futures commission merchants that are clearing members of exchanges to better administer the processing of exchange and clearing transaction fees. Simultaneously, FIA launched a website (click here to access) for FIA members to obtain updates to its new publication. Among other things, the publication recommends that all clearing members draft written procedures addressing exchange and clearing transaction fee management that include, at a minimum, descriptions of how the firm undertakes reconciliations of exchange and clearing transaction fees charged to customers and how it handles potential discrepancies. In making its recommendations, FIA made clear that its descriptions of potential components of procedures “are not designed to set an industry standard. Rather each firm’s written procedures should be consistent with the firm’s business model and fee management processes and requirements.” FIA also recommends that managers responsible for overseeing a clearing member’s exchange and clearing transaction fee process “have the appropriate level of experience or training to fulfill their supervisory obligations.”
My View: Last year, Merrill Lynch, Pierce, Fenner & Smith Incorporated agreed to pay a fine of US $1.2 million to resolve charges brought by the Commodity Futures Trading Commission that, from at least January 1, 2010, through April 2013, the firm failed to employ “an adequate supervisory system” related to the processing of exchange and clearinghouse fees charged to the firm’s customers. This large fine was assessed despite Merrill apparently self-detecting its reconciliation issues and endeavoring to correct them through use of two outside consulting firms. Moreover, the CFTC acknowledged that Merrill’s unreconciled exchange and clearing fees amounted to less than $452,000 over the relevant period, compared to $318 million of total fees paid to relevant exchanges and clearinghouses (i.e., less than a .15 percent unreconciled rate). The FIA’s new publication provides sound guidance regarding steps clearing members should consider to help enhance their relevant policies and procedures and better ensure their customers are assessed correct exchange and clearing fees. However, no adopted measures are likely to ensure flawless compliance.