CME Group, futures regulator to part with struggling AlphaMetrix

10/11/2013

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 the letter.

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 suspicious discrepancies.

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," Dyekman added.

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.



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