By Tom Polansek
CHICAGO, Oct 10 (Reuters) - The parent company of a firm CME
Group Inc and the National Futures Association hired to
help launch a program to improve futures customer protections
said on Thursday it had financial problems and was working to
improve internal controls.
The troubles at Chicago-based AlphaMetrix have accelerated
plans by CME and the NFA to eliminate an affiliate of the
company from the process of making daily checks on the balances
that futures brokers are holding in customer accounts, according
to the NFA.
The daily checks began earlier this year as a way to beef up
customer protections after the bankruptcies of Peregrine
Financial Group in 2012 and MF Global in 2011 rattled confidence
in the futures industry. The now-defunct brokers dipped into
customer segregated accounts in violation of industry rules.
AlphaMetrix's problems could hurt the reputations of CME,
the largest U.S. futures market operator, and the NFA, which
hired the firm as part of a drive to boost customer confidence
by improving oversight and transparency in the futures industry.
AlphaMetrix has "encountered significant cash flow issues
and is working to strengthen its current financial position and
its continued operations," President and Chief Executive Officer
Aleks Kins said in a letter to customers.
The company, known for hosting lavish conferences, fired its
chief financial officer and hired accountants to review and
improve its internal controls and record keeping, according to
AlphaMetrix's commodity pool (CPO) - where investors
contribute money to trade futures, options and other contracts -
has delayed payments owed to third-party money managers and
participants, according to the letter. The size of the pool
could not be learned.
"AlphaMetrix's and the CPO's liabilities greatly exceed
their liquid assets, not taking into account the value of its
other assets," Kins said.
CME and the NFA hired AlphaMetrix360, a unit of AlphaMetrix,
last year to expedite the launch of a system to conduct daily
verifications of customer account balances.
Starting on Oct. 29, banks will provide end-of-day balances
in customer segregated fund accounts directly to CME, instead of
to AlphaMetrix360, NFA spokesman Larry Dyekman said.
After receiving account information from banks, CME will
forward to the NFA data regarding brokers that are regulated by
the NFA, Dyekman said. Account balances are compared to daily
segregated fund balances reported by brokers to identify
CME and the NFA had always planned to bring the verification
process in house, CME spokeswoman Laurie Bischel and NFA
spokesman Larry Dyekman said. The "negotiations picked up over
the last few weeks due to AlphaMetrix's financial situation,"
The NFA regulates the commodity pool run by AlphaMetrix and
is monitoring the firm's financial situation, he said.
Dyekman did not mention AlphaMetrix's financial troubles in
calls and emails about parting ways with the firm, until Reuters
obtained a copy AlphaMetrix's letter to customers.