Understanding your FCM’s business model and how its capital supports the business is of paramount importance to you and your clients. At R.J. O’Brien, our capital is deployed solely in support of our clients’ trading and hedging activities.
Throughout our unrivaled 100-year history, we have never engaged in speculative trading and we never will. We also maintain capital well in excess of the regulatory requirements in order to remain prepared for any market condition.
Our main focus is always to enhance our clients’ trading experience on a global basis while also providing unparalleled risk management practices.
RJO is an industry leader in setting world-class risk management standards, with one goal in mind–protecting our client assets and our shareholders’ equity. We have an exceptional record of counter-party, execution and credit risk management.
RJO has a long history of extraordinarily low expense related to “bad debt”. Over the past five years, our practices have resulted in bad-debt expense of less than .0004 (or 0.04%) of the firm’s capital, which reflects our strong know-your-customer procedures, credit review and risk-management.
Through a combination of well-established processes, seasoned employees, internally developed software, proven third-party solutions and comprehensive pre- and post-trade reporting, we have developed many of the industry’s most comprehensive risk management practices.
We continuously invest in technology and resources to support risk management. Our clients and prospects are encouraged to observe first-hand demonstrations of risk systems.
Conservative Investment Policy
In 2012, the CFTC narrowed Rule 1.25 governing the investment of customer funds. RJO took an even more conservative approach and established an internal investment mandate that called for greater selectivity; this further narrowed what we considered an acceptable investment of customer funds.
We do not engage in the financing of transactions with related, unregulated entities. Our Investment Committee meets quarterly, or more often as needed, to determine which investments meet its stringent criteria for low risk, high liquidity instruments.
As a firm, we exercise strict controls, with checks and balances on all activities related to excess segregated and secured funds. We provide daily transparent reporting on all transactions to a broad audience of senior management. All transactions involving customer segregated funds are reported to management daily, with transactions over $5 million also requiring explicit approval by the CEO or CFO.
Client-Focused Business Model
As a privately held company, majority owned by the O’Brien family, we have an established investment in the success and heritage of the futures industry. We never put the firm’s capital at risk in the marketplace.
RJO operates under an agency brokerage model:
- No speculative proprietary trading
- No dual registration as a broker-dealer
- The firm’s regulatory capital base is 100% in support of its customer agency business
Diversified Client Base
RJO further mitigates risk for both the firm and our clients through the diversification of client types, product types and geography. We not only execute for many of the world’s largest financial institutions, but also clear accounts for many Fortune 500 companies.
Confidence in our business model and capital base is also evident in the execution business we manage for the vast majority of banks in the FCM space.
Our client makeup ranges from institutional investors and commercial hedgers to farmers and ranchers, Commodity Trading Advisors (CTAs), Commodity Pool Operators (CPOs), individual investors, Introducing Brokers, foreign brokers and execution-only clients.
We provide further protection to our clients through the diversification of both our client base and traded product offerings. RJO has an extremely low concentration risk. In the event of a large directional movement in one market, risk is mitigated by the lack of correlation with other markets. On average, our largest single margin calls make up less than 5% of our total calls.