Wells Fargo -New York

NFA Sanctions a Wells Fargo Division

The National Futures Association, the futures industry SRO, cited a swap dealer division of Wells Fargo Division recently and ordered that dealer to pay $2,500,000.

“On August 9, 2019, the Committee issued a complaint against Wells Fargo, a provisionally registered swap dealer and NFA member with its main office located in San Francisco, California. The complaint alleges Wells Fargo violated NFA Compliance Rule 2-49 (a) by failing to communicate with a counterparty in a fair and balanced manner as required under Commodities Futures Trading Commission Regulation 23.433,” the decision stated

The NFA described in more detail what Wells Fargo was doing in its complaint

In August 2014, Wells Fargo was the counterparty for a hedging position for a client for USD/CAD, an American company which planned on buying a Canadian subsidiary. 

At that point, the complaint stated, “Wells Fargo Bank and the Client agreed that the settlement price for the forward contract would be based on the weighted average of the CAD spot contracts that Wells Fargo Bank purchased on August 27, 2014.

“However, instead of calculating and providing the Client with a settlement price on the forward contract based on the weighted average of the actual spot trades, Wells Fargo Bank devised a rate that Wells Fargo Bank thought the Client would accept. Wells Fargo Bank also failed to tell the Client that the average rate was an arbitrary rate not based solely upon the actual spot CAD spots contracts’ price.”

Wells Fargo Bank also appeared to have misled the client on when the trade occurred. 

“ At approximately 3PM (Eastern Time) on August 27, Wells Fargo sent an email to the Client letting it know that trading was done and that the firm would have final numbers for the Client shortly. However, Wells Fargo Bank’s representation to the Client that trading was ‘done’ as of 3PM on August 27 was untrue as Wells Fargo Bank had not yet acquired an amount of $4 billion USD/CAD as of 3PM on August 27 to complete the transaction with the Client.”

Wells Fargo Bank also appeared to have traded options on insider information. During a September 3 call, the complaint stated, “Wells Fargo denied it had executed any CAD options in the 12 hours leading up to its agreement to enter into a forward contract with the Client. The only exception, according to Wells Fargo Bank, was a ‘small protective hedge’ consisting of a 2 day options trade…Wells Fargo Bank actually began requesting quotes for the 2-day options almost an hour before the Client agreed to the forward contract, and Wells Fargo Bank executed the orders immediately after the Client agreed to the trade.”

The NFA’s press release further stated, “The Decision, issued by NFA’s Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Wells Fargo Bank. The BCC found that Wells Fargo Bank failed to communicate with a counterparty in a fair and balanced manner.”

Here is more on the NFA from its website, “In 1974, Congress established the Commodity Futures Trading Commission (CFTC). The same legislation that established the CFTC also authorized the creation of registered futures associations, giving the industry the opportunity to create a self-regulatory organization. NFA’s formal designation as a ‘registered futures association’ was granted by the CFTC on September 22, 1981. NFA began its regulatory operations in 1982.