u.S. COMMODITY FUTURES TRADING COMMISSION

Eastern Region

Division of Swap Dealer and Intermediary Oversight

Telephone: (646) 746-9834

Facsimile: (646) 746-9937

E-Mail: kpiccoli@cftc.gov

Kevin C. Piccoli

Deputy Director

To:

Attention:

Subject:

Date:

All Futures Commission Merchants

Chief Financial Officer

Preparation and Filing of Financial Reports

April 12, 2012

The Division of Swap Dealer and Intermediary Oversight ("Division") of the Commodity

Futures Trading Commission ("Commission" or "CFTC") is issuing this letter to remind

futures commission merchants ("FCM's") 1 of their duties under the Commodity

Exchange Act ("Act") and Commission regulations to accurately prepare and timely file,

with the Commission, financial reports in accordance with applicable Commission

regulations.

Preparation of Financial Reports

CFTC Regulation 1.18 requires, among other things, that an FCM prepare and keep

current ledgers or other similar records which show or summarize each transaction

affecting its asset, liability, income, expense and capital accounts, and in which all such

accounts are classified into the account classification subdivisions specified on Form 1-

FR-FCM or, if such FCM is registered with the Securities and Exchange Commission

as a securities broker or dealer, the account classification subdivisions specified on

Financial and Operational Combined Uniform Single Report (FOCUS).

Filing of Financial Reports

CFTC Regulation 1.10 requires, among other things, that an FCM file a Form 1-FRFCM, as of the close of business each month, no later than 17 business days after the

date for which the report is made. Commission regulation further require the filing of an

amended financial statement due to the correction of a material error or if the statement

as filed does not accurately reflect the financial position as defined in Financial and

Segregation Interpretation No. 4_1.2

I The Act is codified at 7 U.S.C. et seq. (2006). The Commission's regulations are found in Title 17 orthe Code of

Federal Regulations.

2 A material error is defined as a misstatement of any individuallinancial statement account balance, i.e. line item,

where the amount ofthe individual adjustment, ifmade to the financial statements, would cause a change of 10

percent or more in excess net capital or excess segregated funds or where the adjustment, if made to the financial

statements, would cause the firm to fall into an "early warning" net capital position. Errors within individual line

items may be offset, but errors occurring on different line items may not be offset for purposes ofthis definition.

That is, for example, an overstatement of cash is not to be offset by an overstatement of accounts payable, since they

arc different line items. If corresponding adjustments arc made between line items merely because of misreponing a

balance on the incorrect line, and such misreponing is not a recurring problem with the specific firm involved, then

a revised financial repon need not be obtained.
In 2011, the Commission received a significant number of amended statements. Some

of the amendments were to reflect material adjustments that the firm became aware of

after the filing deadline. Other amendments were for adjustments that should have

been known prior to the filing deadline, including those for immaterial amounts.

The filing of amended financial statements may lead the Commission to question if an

FCM is not meeting its obligation to maintain current books and records as prescribed in

Commission Regulation and/or a lack of adequate internal controls over the financial

closing process and/or the preparation and maintenance of its books and records. Such

occurrences may result in heightened Commission oversight of the FCM, including but

not limited to on-site inspections by Division staff and referral to the Commission's

Division of Enforcement.

The Commission encourages all CFOs to reexamine their internal control structure over

the FCM's books and records and financial closing process and make necessary

changes to ensure detection and correction of, among others, inaccurate accruals,

inaccurate monthly closing entries and material errors prior to the filing of the FCM's

financial statements and to ensure compliance with Commission Regulations.

Contacts

FCM's are encouraged to provide copies of this letter to others that assist in the

preparation of their financial statements and other financial records. This letter is also

available electronically on the Commission's website at www.cftc.gov, together with the

Form 1-FR-FCM Instructions Manual, and the Division's "Financial and Segregation

Interpretations." If an FCM or a public accountant has questions on any of the

foregoing, please feel free to contact Division staff listed in the table attached as

Appendix A or your Designated Self-Regulatory Organization coordinator.

cc: Joint Audit Committee

Very truly yours,

..~~

Kevin C. Piccoli

Deputy Director

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APPENDIX A

Regional Location of FCM's

Office Contacts Principal Office

Locations

Eastern Region

140 Broadway, Ronald Carletta All states east ofthe Mississippi River,

'I'll Associate Director except Illinois, Indiana, Michigan, Ohio, and 19 Floor

New York, NY Phone: 646-746-9726 Wisconsin.

10005-1146 FAX: 646-746-9937 Any location outside ofthe United States

E-Mail: rcarletta@cftc.gov

Universal E-Mail:

examinations-bc-ny@cftc.gov

Central Region

525 West Melissa B. Hendrickson Illinois, Indiana, Michigan, Ohio, and

Monroe Street Associate Director Wisconsin

Suite 1100 Phone: 312-596-0661

Chicago,IL FAX: 312-596-0713

60661 E-Mail:

mhendrickson@cftc.gov

Universal E-Mail:

examinations-bc-ch(ci2cftc.gOV

Southwestern Region

4900 Main Thomas Bloom All states west ofthe Mississippi River

Street, Suite Associate Director

500 Phone: 816-960-7710

Kansas City, FAX: 816-960-7750

MO 64112 E-Mail: tbloom(ci)ctk.gov

Universal E-Mail:

examinations-bc-kc(ci2cftc.gOV

Internet Websites

Commodity Futures Trading Commission http://www.cfk.gov

Code of Federal Regulations (Title 17) http://ecfr.gpoaccess.gov

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