CFTC Archives - The Industry Spread

Federal Court Orders Managed Fund and CEO to Pay More Than $17.2 Million in a Commodities Fraud Scheme

October 19, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, Commodities Fraud Scheme, Federal Court

Washington, DC – The U.S. Commodity Futures Trading Commission today announced a default judgment was entered on October 3^rd against defendants Fabio Bretas de Freitas, of Miami, Florida, and Phy Capital Investments LLC, a registered commodity pool operator and commodity trading advisor, for a Commodities Fraud Scheme and misappropriation of client funds.

The judgment orders the defendants to pay a civil monetary penalty of $12,608,982, to pay $4,625,166 in restitution and prejudgment interest to Phy Capital clients, to disgorge $5,752,042 in ill-gotten gains, and permanently bans the defendants from trading in CFTC-regulated markets. The Honorable Jesse M. Furman of the U.S. District Court for the Southern District of New York entered the judgment.

The order resolves a CFTC enforcement case filed on May 9, 2019, charging the defendants with fraud and misappropriation in connection with commodity futures trading. Bretas was also charged with making false statements to the National Futures Association (NFA), the self-regulatory organization for the U.S. derivatives industry. [See CFTC Press Release 7927-19]

The order finds that from at least March 2016 through May 2019, the defendants fraudulently solicited clients and prospective clients to trade commodity interests by claiming they had developed proprietary software called SoPhyA, which achieved profits of 49 percent on futures trading from February 2016 through November 2017 for one of their commodity pools. According to the order, however, only $155,000 of the $6,894,979 in client funds received by the defendants was ever put into any trading accounts and the balance was either misappropriated for non-trading uses or returned to other clients in a manner akin to a Ponzi scheme. The court also found Bretas misrepresented to NFA that one of the defendants’ commodity pools was a private equity fund created to develop intellectual property sold to other businesses. Bretas was also found to have set up a fictitious email account to mislead NFA staff into believing they were communicating with a purported lender to the pool.

In a related criminal case in the U.S. District Court for the Southern District of New York, Bretas awaits sentencing after having pleaded guilty on August 8, 2019, to charges of conspiracy to commit wire fraud and commodities fraud. [See Case No. S3 19 Cr. 257 (LTS)]

The CFTC cautions victims that restitution orders may not result in the recovery of money lost, because wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC appreciates the assistance of NFA, the Money Laundering and Transnational Criminal Enterprises Unit of the United States Attorney’s Office for the Southern District of New York, the New York Division of the Federal Bureau of Investigation, and the Comissão de Valores Mobiliários of Brazil.

The Division of Enforcement staff members responsible for this case are Elizabeth M. Streit, Joy McCormack, Scott R. Williamson, Matthew Edelstein, and Stacie Pan.

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CFTC’s Commodity Pool Fraud Advisory

The CFTC has issued several customer protection Fraud Advisories providing the warning signs of fraud, including the Commodity Pool Fraud Advisory, which puts a spotlight on a type of fraud involving individuals and firms, often unregistered, offering investments in commodity pools.

Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.

Caution Weighs on Trade Talks, Brexit Hopes, Dollar Gains

October 15, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, Brexit, CFTC, EUR-USD, FX, FX trading, GBP-USD, Retail Fx, Sino-U.S. trade talks, USD/JPY

Summary: Holiday-thinned markets turned cautious on a partial trade deal between China and the US while scepticism over a Brexit deal rose. FX reverted to familiar ranges in subdued trade with Japan, Canada and the US on holiday. The Dollar Index (USD/DXY) gained ground following two days of losses to finish at 98.516 (98.332 yesterday). Sterling fell 0.68% to 1.2562 (1.2615) after a deal to ease Britain’s departure from the European Union faced uncertainty. Euro area nations reportedly wanted more concessions from Boris Johnson. A total agreement was unlikely this week. The Euro dipped 0.07% to 1.1025 from 1.1036. Germany’s Wholesale Prices fell more than forecast.

CMC Markets – Singapore GDP – YoY – 15 Oct 2019

The Dollar ended flat against the safe-haven Yen at 108.35. Ahead of today’s release of the RBA meeting minutes, the Australian Dollar retreated in cautious trade to 0.6775 from 0.6793. The RBA trimmed rates at that last meeting. Elsewhere in Asia, the Monetary Authority of Singapore (MAS), effectively eased rates for the first time since 2016. The Singapore central bank did this by reducing the slope of the Singapore Dollar’s NEER (Nominal Effective Exchange Rate). Which is effectively the Singapore Dollar’s weighted average rate against a basket of foreign currencies. The effective easing was less than traders expected. The Dollar eased against the Singapore Dollar (USD/SGD) to 1.3695 from 1.3729. Singapore’s economy avoided a technical recession as Q3 growth rose 0.1%, missing forecasts at 0.2%. Wall Street stocks slipped in limited trade. Bond yields were unchanged.
China’s Trade Surplus increased in CNY terms to CNY 275 billion in September from CNY 240 billion in August. US Empire State Manufacturing Index rose to 4.0, beating forecasts of 1.1.

EUR/USD –The Euro fell back into range trading, dipping to 1.1025 after touching 1.10428 highs in Asia. The shared currency hit a low of 1.10126 before steadying in quiet trade.
GBP/USD – “What goes up must come down.” The British Pound fell back to 1.2562 from 1.2610 as optimism on a smooth Brexit waned with EU and UK leaders stressing that there was still a long way to go, before they could agree a Brexit deal. Much of Sterling’s spike over the weekend to 1.27068 was the result of fierce short covering in less liquid conditions.
USD/JPY – The Dollar eased to 108.35 after trading to a near 6-week high at 108.628 on Friday on the market’s risk on stance. USD/JPY peaked at 108.521 yesterday before dropping to a low at 108.033.
USD/SGD – The Greenback eased against the Singapore Dollar to 1.3695 from 1.3728 yesterday and 1.3757 Friday. Asian FX were disappointed that the MAS easing was less than they expected, “only just.” Still it was the first easing from the Singapore central bank since 2016. The Singapore Dollar has been exceptionally strong and recorded gains against the Greenback and other currencies. Expect a reversal of this with a vigilant MAS on the lookout.

On the Lookout: Global markets return to normal conditions today. The Asian day starts off with a data deluge from China and Japan. The RBA releases its latest monetary policy meeting minutes in Sydney (11.30 am). China reports on its September CPI and PPI. Japanese markets return today with the release of Japanese Revised Industrial Production and Tertiary Industry Activity. BOJ Governor Haruhiko Kuroda is due to speak at a Bank of Japan Branch Managers meeting in Tokyo (11.30 am Sydney). European reports today: Switzerland’s PPI, French Final CPI and Germany’s ZEW Economic Sentiment. The UK releases its Employment report for September with Average Weekly Earnings (Wages), Claimant Count Change (Unemployment Benefits), and Unemployment Rate. Bank of England Governor Mark Carney is due to testify at Financial Treasurer’s Select Committee in London.

Empire State Manufacturing Index – Forexfactory – 15 OCT 2019

Trading Perspective: Expect FX to trade in familiar ranges as the Dollar consolidates after two days of losses. The Commitment of Traders report will be released tomorrow due to the US holiday yesterday.
On the trade front, China reportedly wants to hold more talks with the US to hammer out details of President Trump’s touted “Phase One” deal. Which includes a delay of the Oct 15 tariffs, China’s agreement to buy more US agricultural products, more FX transparency. FX will continue to monitor developments on this front. Watch USD/JPY, this should be the main barometer.
Markets will look to Wall Street as US Q3 earnings season begins. Trades will look to the manufacturing and export industries to see the impact of the strong US Dollar.
While the Dollar’s corrective downtrend has hit a pause, it is by no means over with.

USD/JPY – The Dollar trade to a 6-week and overnight high at 108.628 on Friday afternoon in New York following optimism which was built on a China-US limited trade deal. Overnight the USD/JPY traded to 108.521. USD/JPY closed at 108.35 in New York. Immediate resistance lies at 108.60/70 which should contain any Dollar rallies. The next resistance level lies at 109.00. Immediate support can be found at 108.30 followed by 108.00. Look for a likely trade today of 108.00-108.60. Prefer to sell rallies.
EUR/USD – The Euro dipped to 1.1025from 1.1036 yesterday. Overall trading range for the shared currency was 1.10126-1.10428, familiar trading ranges in subdued markets. We could be back into a 1.0980-1.1080 range (September). Immediate resistance in the Euro lies at 1.1050 (overnight high 1.1043) followed by 1.1080. Immediate support can be found at 1.1000 followed by 1.0980. Look to trade a likely range of 1.1000-1.1070. With market positioning still short of Euro bets, the ideal trade is to buy dips.
AUD/USD – The Australian Dollar eased against the overall stronger Greenback to 0.6775 from 0.6792 yesterday. AUD/USD traded to a high at 0.68104 on Friday boosted by the prospects of a breakthrough in the US China trade talks. With FX turning cautious last night, the Aussie Battler retreated. Traders will monitor the RBA’s minutes of its most recent policy meeting. The Australian central bank cut its Official Cash Rate by 0.25% at that meeting. While the RBA said that interest rates would remain low for an extended period, they did not give any clues as to future policy. At the end of the day, the RBA are done for now and the Aussie market remains short. AUD/USD has immediate support at 0.6750 (overnight low 0.67512) and 0.6720. Immediate resistance can be found at 0.6800 followed by 0.6830. Look to trade a likely range today of 0.6760-0.6810. Prefer to buy dips.

IG DAILY FX USD SGD Chart – 15 OCT 2019

USD/SGD – The MAS effective easing disappointed Singapore Dollar bears who had anticipated more. USD/SGD eased to 1.36757 before settling at 1.3695, and 1.3728 yesterday. This was the first easing by the MAS since 2016 and the Singapore Central Bank is aware of the currency’s strength on a trade weighted basis. Immediate support can be found at 1.3680 followed by 1.3650. Immediate resistance lies at 1.3720 followed by 1.3760. Look to buy any USD/SGD dips or sell SGD against the Yen or Aussie.

Happy trading all.

CFTC’s Power To Prosecute Manipulators Examined

October 14, 2019 by Michael Volpe Leave a Comment Filed Under: Feature Articles Tagged: CFTC, Commodity Exchange Act, Dodd-Frank Act, FIA, Monex

Dodd/Frank gave the Commodities Futures Trading Commission (CFTC) more power to pursue fraud and manipulation in commodities, but is that power limitless?

That was the question in the latest Futures Industry Association (FIA) webinar entitled “CFTC’s Jurisdiction over Fraud in the Cash Markets: Are there any Limits?”

While fraud and manipulation has always been legal, lawmakers felt the laws needed to be strengthened.

In particular, Section 6 © 1 of Dodd/Frank was added to address spoofing in particular, “It shall be unlawful for any person, directly or indirectly, to use or employ, or attempt to use or employ, in connection with any swap, or a contract of sale of any commodity in interstate commerce, or for future delivery on or subject to the rules of any registered entity, any manipulative or deceptive device or contrivance.”

Dodd- Frank act

Democratic Senator Maria Cantwell, from the State of Washington, was one of those who championed adding this section and she explained at the time why it was necessary, “Some people might be thinking: Why do we need legislation like that? Don’t we already have something in place? Unfortunately, current law does not have enough protections for our consumers, and we have found in other areas that it is very important to have a strong bright line, a law on the books against manipulation. . . . [T]he federal courts have recognized that with the CFTC’s weaker anti-manipulation standard, market ‘manipulation cases generally have not fared so well.’ In fact, the law is so weak that in the CFTC’s 35-year history, it has only had one successfully prosecuted case of market manipulation.”

Many in the derivatives industry felt that this new language would give the CFTC sweeping, and possibly unlimited, power; in fact, the CFTC addressed this fear by stating, “the Commission expects to exercise its authority under 6(c)(1) to cover transactions related to the futures or swaps markets, or prices of commodities in interstate commerce, or where the fraud or manipulation has the potential to affect cash commodity, futures, or swaps markets or participants in these markets,” after Dodd/Frank was adopted.

Regulation 180.1 instituted by the CFTC, according to the webinar, gave the CFTC broad new powers.

(1) Use or employ, or attempt to use or employ, any manipulative device, scheme, or artifice to defraud;

(2) Make, or attempt to make, any untrue or misleading statement of a material fact or to omit to state a material fact necessary in order to make the statements made not untrue or misleading;

(3) Engage, or attempt to engage, in any act, practice, or course of business, which operates or would operate as a fraud or deceit upon any person

Since, several cases which have made it through federal court, have seen an expansion of that power, particularly in virtual currency.

Largely, the argument has fallen on how broad the definition of commodity is.

The CFTC defines a commodity as, “A commodity, as defined in the Commodity Exchange Act, includes the agricultural commodities enumerated in Section 1a(9) of the Commodity Exchange Act, 7 USC 1a(9), and all other goods and articles, except onions as provided in Public Law 85-839 (7 USC 13-1), a 1958 law that banned futures trading in onions, and all services, rights, and interests in which contracts for future delivery are presently or in the future dealt in; (2) A physical commodity such as an agricultural product or a natural resource as opposed to a financial instrument such as a currency or interest rate.

For instance, the CFTC prosecuted Coin Drop Markets, a firm which traded certain virtual currencies for its clients.

This case was heard by Judge Jack Weinstein, who defined commodity as, “Where a futures market exists for a good, service, right, or interest, it may be regulated by CFTC as a commodity, without regard to whether the dispute involves futures contracts.”

This was important because, even though Coin Drop was not itself trading derivatives, their securities were still defined as derivatives because futures markets for them existed somewhere.

“The district court found that the CFTC’s broad authority extends to fraud or manipulation in the derivatives markets and underlying spot markets and that the CFTC may exercise its enforcement power over fraud related to virtual currencies sold in interstate commerce,” one slide noted of the decision.

The definition became even more expansive with another case.

The CFTC took up a case against My Big Coin, its own virtual currency.

Whereas Coin Drop traded Bitcoin and other virtual currencies which had futures contracts- even if it wasn’t trading these futures contracts themselves- My Big Coin was its own virtual currency with no futures market, but the courts have thus far accepted even this as a commodity.

Here is part of another slide.

Defendants filed a motion to dismiss arguing that, because no futures contracts are traded on My Big Coin, My Big Coin was not a “commodity.” As a result, the defendants argued, the CFTC had failed to allege that the supposed fraud involved the sale of a “commodity” and therefore had not stated a cause of action under 6(c)(1).

The CFTC countered that a “commodity” under the Commodity Exchange Act is broader than any particular type or brand of that commodity. Given the existence of Bitcoin futures contracts, the CFTC contended that contracts for the future delivery of virtual currencies are “dealt in”, therefore My Big Coin as a virtual currency is therefore a commodity.

Defendants also argued that Section 6(c)(1) and Regulation 180.1 are restricted to cases involving market manipulation and did not reach the fraud that was alleged in the CFTC’s complaint. The district court disagreed and stated that Section 6(c)(1) and Regulation 180.1 explicitly prohibit fraud even in the absence of market manipulation.

In the broadest ruling, the CFTC sued Monex, even though Monex was never charged with manipulation, but rather with misrepresenting the safety of investments, and there were no derivatives sold.

One slide explained, the CFTC’s position in the case, “The CFTC alleged that, while Monex represented that leveraged precious metals was ‘a safe, secure and profitable way for retail customers to invest,’ the Atlas program was a way for customers to lose money because Monex would be the counterparty to each transaction. As such, the CFTC contended that Monex engaged in fraudulent activity in violation of Section 6(c)(1).”

Monex, on the other hand, argued this according to another slide.

Monex argued that the CFTC’s anti-fraud authority did not reach the mere fraudulent sale of precious metals.
Monex contended that Section 6(c)(1) only confers anti-fraud jurisdiction where a particular commodity transaction manipulates or potentially manipulates the derivatives market.

The CFTC continued losing until July 2019, when the US 9^th Circuit Court of Appeals issued a favorable decision.

Here is part of an article from National Law Review, “Most relevant to parties trading (non-leveraged) commodities in interstate commerce, the three-judge panel relied upon the plain language of CEA §6(c)(1) to interpret the CFTC’s anti-manipulation authority to not be limited to allegations of market manipulation but also to reach allegations of stand-alone fraud (i.e., fraud in the absence of market manipulation), at least in the context of the sale of leveraged commodities. This interpretation could encourage the CFTC to continue to expand its regulation of commodities in interstate commerce beyond the traditional scope of the agency’s authority.”

CFTC Files Enforcement Actions Against Two Affiliate Marketers for Binary Options Fraud

October 12, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: Binary Options Fraud, CFTC, enforcement actions

Washington, DC – The U.S. Commodity Futures Trading Commission announced today that it filed a pair of enforcement actions against two affiliate marketers, David Sechovich and Peter Szatmari for creating and disseminating millions of fraudulent solicitations to open and fund retail binary options trading accounts on websites operated by unregistered, off-exchange brokers.

In one action, the CFTC issued an order filing and settling fraud charges against Sechovich, assessing more than $2.8 million in penalties and restitution. The order requires Sechovich to cease and desist from engaging in future violations of the Commodity Exchange Act and CFTC regulations, to return over $1.8 million to defrauded customers, and to pay a civil monetary penalty of more than $949,000. It also subjects him to trading and registration bans. In the other action, the Commission filed a civil enforcement action in the United States District Court for the District of Hawaii against Szatmari. The two matters are related to prior CFTC actions in federal district courts in Florida alleging fraud and prohibited advertising against several other individuals and entities. [See Release No. 7807-18]

As the filings explain, “affiliate marketing” is a form of performance-based marketing that promotes third-party products and services, such as binary options trading, and is typically conducted via solicitations that the affiliate marketer emails to recipients and/or posts on the internet. According to the order and as alleged in the complaint, Sechovich and Szatmari each lured prospective customers by disseminating fraudulent marketing materials in six marketing “campaigns.” These solicitations instructed unsuspecting investors to open and fund binary options accounts with “recommended” brokers to get free access to automated trading software that purported to generate astronomical profits with no risk of loss. According to the filings, these marketing materials included numerous false or misleading statements, including:

Misrepresenting that trading binary options would generate significant, even guaranteed, profits while minimizing or disclaiming any risks;
Claiming that the automated trading software had been tested and generated profits when, in reality, the software had not been tested, did not work as claimed, and in some cases did not exist;
Portraying actors or fake personalities as actual owners or users of the automated trading software, without disclosing that they were not real users of the software; and
Depicting fictitious trading results as real.

The order finds and the complaint further alleges that Sechovich and Szatmari each failed to disclose that they received a fee from the binary options brokers they recommended every time a new account was opened and funded as a result of their solicitations. They also failed to disclose that this fee arrangement was their sole basis for recommending brokers. Sechovich’s and Szatmari’s fraudulent solicitations were disseminated to and/or viewed by millions of prospective customers, with approximately 25,000 customers opening binary options trading accounts and funding those accounts, usually with an initial deposit of $250 or more. Sechovich and Szatmari generated profits of at least $3.8 million.

In its continuing federal court litigation against Szatmari, the CFTC seeks full restitution to defrauded individuals, disgorgement of ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations, as charged.

The CFTC cautions that orders requiring repayment of funds to victims may not result in the recovery of any money lost because the wrongdoers may not have sufficient funds or assets. The CFTC will continue to fight vigorously for the protection of customers and to ensure the wrongdoers are held accountable.

The CFTC thanks the U.S. Securities and Exchange Commission for their assistance.

The Division of Enforcement staff members responsible for these two cases are: Allison V. Passman, Joseph Patrick, Stephanie Reinhart, Susan Gradman, and Scott R. Williamson.

* * * * * *

CFTC’s Binary Options Customer Fraud Advisory

The CFTC has issued a Fraud Advisory regarding schemes involving binary options and their trading platforms. The advisory warns customers that the perpetrators of these unlawful schemes may refuse to credit customer accounts, deny fund reimbursement, commit identity theft, and manipulate software to generate losing trades.

Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), or file a tip or complaint online.

Risk-On, Risk-Off, USD/JPY UP, USD/JPY Down. Here We Go Again.

October 10, 2019 by Michael Moran Leave a Comment Filed Under: Market News, Market News - Asia Open Tagged: AUD/USD, Brexit, CFTC, EUR-USD, financial services, Fintech, FX trading, GBP-USD, Retail Fx, Sino-U.S. trade talks, USD/JPY

Summary: FX traded in familiar ranges, the Dollar Index (USD/DXY) closed flat (99.102) although the Greenback was mixed against major Rivals. It was a case of risk-off, risk-on again as hopes for a China-US trade deal rose. Yesterday was risk-off after the US State Department imposed visa restrictions on some Chinese officials it believed were responsible for abusing Muslims in Xiajiang Province. The Financial Times reported that Chinese officials are offering to increase their purchases of US agricultural products. Another headline from Bloomberg reported that Chinese officials are open to agreeing a partial trade deal with the US. The next round of trade talks are due today and Friday. The Dollar rallied 0.51% against the Yen to 107.50 before slumping to 107.10 yet again in early Sydney. The South China Morning Post reported that China and the US are no closer to a trade deal. An anonymous source said that China and the US “have made no progress.”

JOLTS – Job Openings Chart – Reuters Graphics – 10 OCT 2019

FOMC meeting minutes revealed Fed officials supported the need for a September rate cut but remain divided on the way ahead for monetary policy. The divide between the hawks and doves saw a neutral response from FX. The Euro advanced 0.12% to 1.0975 (1.0955). Sterling was modestly lower at 1.2912 91.2922) after erasing earlier gains. The Northern Irish party, which supports the British government said it would oppose an EU concession on the Irish backstop. The Australian Dollar ended flat at 0.6729. Emerging Market currencies were mostly up versus the Greenback. Wall Street stocks and global bond yields rose. The US S&P 500 was up 0.77% to 2,920.
The US 10-year Treasury yield climbed 5 basis points to 1.58%.
US JOLTS Job Openings, a measure of labour demand, dropped in August to 7.05 million from July’s 7.22 million, and missing forecasts of 7.35 million. While the number of openings is still plenty, it was the third monthly drop. The decrease in hiring fits in with the slowing trend in job growth.

USD/JPY – The Dollar finished higher against the Yen to 107.51, up 0.51% from 107.10 yesterday. Risk-on sentiment and a higher US 10-year yield boosted the Greenback against its Japanese counterpart. USD/JPY then slumped in early Sydney back to 107.10 on the South China Morning Post report.
EUR/USD – The Euro advanced against the Dollar to 1.0975 (1.0955) after trading in a familiar 1.0952-1.0990 range. German 10-year Bund yields climbed 5 basis points to -0.55% matching its US counterpart.
GBP/USD – Sterling erased its gains, slipping to 1.2212 (1.2222 yesterday) after climbing to 1.2291 on a series of Brexit headlines from various media channels.
AUD/USD – The Australian Dollar ended flat at 0.6728 (0.6730). The market’s risk-on stance failed to benefit the Aussie which continues to hover above recent 10-year lows reached last week.

On the Lookout: Markets will look to tonight’s release of US Headline and Core CPI reports. Ahead of that data is plentiful. The day starts off with the UK RICS House Price balance report. Japanese Core Machinery Orders, PPI, and Bank Lending data follow. Australian Home Loans round up Asia’s reports. Germany reports on it’s Trade Balance followed by French and Italian Industrial Production. The UK follow next with September GDP, Manufacturing Production, Industrial Production and Goods Trade Balance. The ECB releases its Monetary Policy Meeting minutes. Finally, the US Inflation numbers follows was well as US Weekly Unemployment Claims.
FX will continue to monitor trade related headlines from various media outlets.

Trading Perspective: The rally in US bond yields was matched by its rivals which saw the Dollar Index close flat. FOMC meeting minutes saw Fed officials divided evenly between hawks and doves on the way ahead for monetary policy. US JOLTS Job Openings, although its not a primary economic report, missed forecasts. The Dollar is living on borrowed time and tonight’s CPI report could be crucial. The Greenback’s topside is limited. The next move is south.

Global Bond Yield Rates – Bloomberg – 10 OCT 2019

USD/JPY – While the Dollar rallied against the Yen on improved risk appetite and higher US bond yields, it’s topside is limited to 108.00. USD/JPY closed at 107.50 after trading to an overnight high at 107.629. Immediate resistance today lies at 107.70 followed by 108.00 Immediate support can be found at 107.20 and 106.80 (overnight low traded was 106.934). Look to trade a likely range today of 106.80-107.80. Just trade the range shag on this one. Media releases will see this roller coaster ride continue.

DOLLAR YEN CHART – DAILY FX – 10 OCT 2019

EUR/USD – The Euro advanced to finish at 1.0975 after trading to an overnight low at 1.09518. The ECB releases its latest monetary policy account meeting minutes later today. There are also Euro area data reports to digest. The Euro has been trading in a familiar range between 1.0900-1.1000 for just over a week now. Market positioning remains short of Euro bets and the topside is the more vulnerable side. Look for a likely range today of 1.0950-1.1110. Prefer to buy dips.
AUD/USD – The Australian Dollar finished flat despite improved sentiment on renewed hopes of a trade. This morning’s opening saw the Aussie dip to 0.6715 on the South China Morning Post media release on trade. AUD/USD has immediate support at 0.6700 followed by 0.6680. Immediate resistance can be found at 0.6750 (overnight high 0.6750) followed by 0.6770. Look for a likely range today of 0.6700-50. Prefer to buy dips.

Tin helmets out, we are in for a volatile Asian session. Happy trading all.

CFTC Charges Former Registrant with Making False and Misleading Statements During a CFTC Investigation

October 9, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, CFTC Investigation, Misleading Statements

Washington, DC — The U.S. Commodity Futures Trading Commission today issued an order filing and settling charges against Rafael Novales for making false and misleading statements of material fact to CFTC staff during an CFTC investigation by the agency’s Division of Enforcement.

“As this enforcement action shows, the Commission will hold accountable individuals who make false or misleading statements to our investigators,” said CFTC Enforcement Director James McDonald. “We take this very seriously because it undermines our efforts to help ensure the

James McDonald, CFTC’s Director of the Division of Enforcement

integrity of the markets we regulate. When questioned by the CFTC in an interview or in sworn testimony, witnesses need to tell the truth.”

According to the order, Novales, a then-registered associated person for a registered introducing broker (IB) was interviewed by Commission staff in April 2018. The interview was part of an ongoing Commission investigation in connection with his employment at the registered IB. During that interview Novales knowingly made false and misleading statements that he always spoke with and obtained specific authorization from certain customers of the IB to execute orders on their behalf prior to order execution. Subsequently, however, during sworn testimony before the Commission, Novales admitted that on at least some occasions he simply left voicemail messages for the customers informing them of the terms of the transactions and that, after leaving the voicemail messages, the IB would execute the orders on their behalf without obtaining the customers’ specific authorization.

The order imposes a $50,000 civil monetary penalty and compliance with certain undertakings, including that Novales is prohibited for a period of five years from seeking registration, claiming exemption from registration, or acting in any capacity requiring registration.

The CFTC Division of Enforcement staff members responsible for this case are James Deacon, Kara Mucha, Kevin Samuel, James H. Holl III and Rick Glaser.

CFTC Orders RBC Capital Markets, LLC to Pay $5 Million for Supervisory Failures Resulting in Illegal Trades and Other Violations

October 9, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, RBC Capital Markets, Supervisory Failures Resulting, violations

Washington, DC – The U.S. Commodity Futures Trading Commission today announced the agency issued an order on Monday, September 30, 2019, filing and setting charges against RBC Capital Markets, LLC (RBCCM), a registered futures commission merchant (FCM), for failing to meet its supervisory obligations, which resulted in hundreds of unlawful trades and other violations over the period of at least late 2011 through May 2017.

The order requires RBCCM to cease and desist from future violations, pay a $5 million civil monetary penalty, and for a period of three years to expeditiously and completely cooperate with the Commission and any other governmental agency in all future investigations or inquiries involving the factual and legal subject matters of this action.

James McDonald, CFTC’s Director of the Division of Enforcement

“The CFTC will vigorously enforce the rules requiring our registrants to properly supervise their business activities. Where those supervision failures are accompanied by other violations, we will pursue those violations as well,” said CFTC Director of Enforcement James McDonald.

The order finds that between December 2011 and October 2015, RBCMM engaged in at least 385 noncompetitive, fictitious, exchange for physical wash transactions (Wash EFPs). The order finds that RBCCM engaged in Wash EFPs in order to move positions internally between RBCCM accounts, which was less costly and administratively burdensome than other options to manage risk, and because it was believed that the exchange allowed it. RBCCM personnel checked with the appropriate compliance officer on whether the trades were appropriate but the officer did not respond, follow up with the exchange, or provide any formal training until at least May 2015.

Notably, as the order finds, 217 of the Wash EFPs occurred after the entry of a consent order in December 2014, which resolved a CFTC enforcement action against RBCCM’s parent, the Royal Bank of Canada (RBC), for wash sales and fictitious transactions. [See Release No. 7086-14] The order finds that RBCCM had actual notice of the December 2014 injunction against RBC prohibiting wash trading, yet the Wash EFPs continued at RBCCM. The order also finds that RBC delegated execution and surveillance of the bank’s futures transactions on exchanges in the United States to RBCCM, but that they failed to adequately implement a reasonable supervisory system overseeing its futures transactions, and failed to detect at least 385 Wash EFPs.

The order further finds that RBCCM failed to prepare and timely file Risk Exposure Reports, disclose material non-compliance issues to the CFTC, and maintain and promptly produce required records to the CFTC.

The order also finds other supervisory failures. For example, all RBC affiliates, including RBCCM, must follow company-wide policies and procedures, but RBCCM failed to implement several of those policies and procedures, which resulted in the various violations set forth in the order. To wit, RBCCM did not have a system to ensure employees reviewed the compliance manual; the compliance manual did not adequately address the requirements of EFPs; there was no formal training on EFPs; and RBCCM failed to adequately monitor for potential futures wash trades.

The order additionally finds that RBCCM disclosed the Wash EFPs to the CFTC shortly before formally disclosing it in its required 2015 Chief Compliance Officer report. RBCCM, however, failed to timely and fully respond to document requests and subpoenas issued by CFTC staff and attempted to dissuade them from inquiring into RBC’s involvement with the Wash EFPs, even from a supervisory perspective. These actions were taken despite the inter-relationship between RBCCM and RBC, as well as the prior consent order, which required cooperation of RBC in any investigation by the Division of Enforcement related to the subject matter of this action. As a result, the order finds that the CFTC expended considerable resources trying to obtain information and timely compliance with its subpoenas from RBC and RBCCM.

The Division of Enforcement staff members responsible for this case are Allison Passman, Joseph Patrick, Susan Gradman, and Scott Williamson.

CFTC Orders Energy Broker and Its Owner to Pay Over $1.5 Million for Misappropriating Confidential Customer Information and Other Violations

October 9, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, Energy Broker, Misappropriating Confidential Customer Information

Washington, DC – The U.S. Commodity Futures Trading Commission announced today that it issued an order filing and settling charges against introducing broker Classic Energy LLC and its owner Mathew D. Webb of Houston, Texas for Misappropriating Confidential Customer Information, nonpublic order information in connection with block trades in natural gas futures on ICE Futures US, as well as related supervision and recordkeeping violations. The order was entered on Monday, September 30, 2019.

“This enforcement action shows that the Commission will continue to vigorously pursue those who misappropriate confidential information, for personal benefit, in violation of a preexisting duty,” said CFTC Enforcement Director James McDonald. “This form of misconduct undermines trust and confidence in vital futures markets and it will not be tolerated.”

The order imposes on Classic and Webb a civil monetary penalty of $1.5 million and also requires that Webb disgorge $413,065 in ill-gotten gains. In addition, the order bans Webb until January 3, 2022 from trading on or subject to the rules of any CFTC-registered entity and from engaging in any activities requiring registration with the CFTC.

Misuse of Material, Nonpublic Order Information

According to the order, on at least 63 occasions between April 2014 and September 2015, Webb misused material, nonpublic block trade order information provided to him by Classic’s customers. Instead of using this information to facilitate block trades with other market participants, as the customers expected, Webb took the other side of these block trades in his proprietary trading account. According to the order, Webb further deceived Classic’s customers by creating the false impression that he was acting only as a broker, when in fact he was actually acting as a trading counterparty. For example, Webb continued to charge customers brokerage commissions for block trades he filled with his proprietary trading account. Through this scheme, Webb realized profits of over $400,000. The order finds Classic vicariously liable for Webb’s deceptive conduct.

Supervision and Recordkeeping

The order also finds multiple supervision and recordkeeping failures by Classic and Webb, including:

Failing to have policies and procedures in place to prevent Classic’s brokers from taking the other side of customer block trades;
Allowing Webb to control a proprietary trading account without adequate controls to prevent the misuse of customer information;
Allowing an independent trader employed personally by Webb to sit on Classic’s trading floor, where he had access to customers’ material, nonpublic information and the ability to trade on this information in Webb’s proprietary trading account;
Failing to maintain records of oral communications related to block trades, resulting in the loss of audio recordings for all block trades brokered by Classic before August 13, 2015; and
Failing to ensure that Classic had an adequate system for preserving these records.

The CFTC Division of Enforcement staff members responsible for this case are Alison Auxter, Lauren Fulks, Thomas Simek, Christopher Reed, and Charles Marvine.

* * * * * *

Reporting of Misuse of Confidential Information

The Commission will thoroughly investigate and, where appropriate, prosecute instances in which individuals have abused access to confidential information—for example, by misappropriating confidential information, improperly disclosing a customer’s trading information, front running, or using confidential information to unlawfully prearrange trades. In addition, the Commission will enforce laws and CFTC regulations requiring its registrants to develop and enforce policies prohibiting the misuse of confidential information.

CFTC Orders CHS, Inc. to Pay $500,000 Penalty for Reporting Violations

October 5, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, CHS, Reporting Violations

Washington, DC — The U.S. Commodity Futures Trading Commission announced today that an order filing and simultaneously settling charges against CHS, Inc. a cooperative corporation headquartered in Minnesota, for failing to submit accurate monthly CFTC Form 204 Reports regarding the composition of CHS’s fixed price cash corn and soybean purchases and sales. The order was entered on Monday, September 30, 2019. The order also charges CHS for violating the cease and desist provision of a 2016 CFTC order [See Release No. 7337-16], which involved a 13-year failure to file correct Form 204 reports with the Commission.

The order entered today imposes a $500,000 civil monetary penalty and recognizes that CHS’s self-reporting, cooperation, and remediation substantially reduced its penalty.

James McDonald, CFTC’s Director of the Division of Enforcement

“This resolution reflects the fact that entities that violate prior orders will be held accountable, but also that self-reporting and full cooperation carry real and substantial benefits,” said CFTC Director of Enforcement James McDonald. “We acknowledge that CHS itself discovered the reporting errors and promptly self-reported the issue to the Commission, even as CHS continued to investigate the scope of the potential violations. The reporting errors in this case were likely not of the type that the Commission would have detected otherwise. The civil monetary penalty reflects this self-report and substantial cooperation.”

In March 2016, the CFTC entered an order which found that CHS had violated Regulation 19.01 by failing to submit correct Form 204 reports for a thirteen-year period. The Commission ordered CHS to pay a $1 million civil monetary penalty, and required CHS to cease and desist from violating Regulation 19.01.

The order entered today finds that subsequent to the entry of the 2016 order, CHS continued to experience difficulty submitting correct Form 204 Reports. These difficulties stemmed in part from a number of steps CHS took to replace its enterprise software, which, among other things, would automate the Form 204 Report process. Following the 2016 order, CHS began auditing the various inputs into the reports for compliance. These inputs came from, among other things, certain of CHS’s divisions and subsidiaries.

According to the order entered today, in May 2018, CHS self-reported the Form 204 Report errors it was aware of to the Commission. Subsequently, CHS continued auditing its Form 204 Reports and apprised the Commission when it discovered new information. CHS accepted responsibility for its failures, was forthcoming and responsive in connection with questions regarding the violations and remediation, and performed an analysis to determine if any position limits violations had occurred as a result of the erroneous Form 204 Reports.

Consistent with this filing, the CFTC’s Division of Market Oversight issued in 2013 an advisory regarding the obligation of market participants to submit accurate Form 204 Reports. [See CFTC Staff Advisory No. 13-42]

The Division of Enforcement thanks the Division of Market Oversight for their assistance in this matter.

The Division of Enforcement staff members responsible for this action are James H. Holl III, Alison B. Wilson, and Rick Glaser.

CFTC Orders Six Financial Institutions to Pay Total of More Than $6 Million for Reporting Failures

October 5, 2019 by industryspread Leave a Comment Filed Under: Regulatory Annoucements Tagged: CFTC, financial institutions, Reporting Failures

Washington, DC – The U.S. Commodity Futures Trading Commission today announced that it issued orders yesterday against HSBC Bank USA, N.A., Société Générale International Limited, The Northern Trust Company, NatWest Markets Plc, The Bank of New York Mellon, and PNC Bank, National Association for reporting failures. Société Générale International Limited and The Northern Trust Company were also charged with failing to supervise in connection with the reporting failures. HSBC was also charged with violating swap-dealer risk management regulations, the first time the Commission has brought such an action.

“Accurate reporting is essential to effective fulfillment of the regulatory functions of the CFTC, including meaningful surveillance and enforcement programs,” said CFTC Director of

James McDonald, CFTC’s Director of the Division of Enforcement

Enforcement James McDonald. “As these actions show, the CFTC will continue to vigorously enforce reporting requirements. The CFTC will also take appropriate action where reporting failures are occurring as a result of serious supervisory failures.”

McDonald further commented on the HSBC matter, “The Commission’s swap-dealer risk management rules are designed to monitor and regulate the systemic risk endemic to the swaps market. At the heart of these regulations is the requirement that swap dealers separately consider the risks unique to swaps as an asset class, separate from their other businesses. This is the first action the CFTC has brought regarding violations of these particular swap-dealer risk management regulations, and the Commission will continue to focus on enforcing these critical requirements.”

Enforcement Action Against HSBC Bank USA, N.A.

On Monday, September 30, 2019, the CFTC filed and settled charges against HSBC Bank USA, N.A., a provisionally registered swap dealer, for failing to establish appropriate risk management systems for its swap activities or to properly report swap data in certain categories, for certain swap transactions, to a swap data repository. The CFTC order imposes a $650,000 civil monetary penalty on HSBC, among other sanctions. The order recognizes that the civil monetary penalty in this matter was reduced in light of HSBC’s cooperation and remediation.

With respect to risk management, the order specifically finds that from January 2013 until November 2015, HSBC did not designate a swap dealer governing body or senior management to fulfill the requisite oversight duties under CFTC regulations. Relatedly, with respect to its swap dealing activities, HSBC failed to:

Separately consider certain risks associated with its swap activities;
Properly approve its risk tolerance limits, risk management program and policies and procedures, and trading policies; and
Properly review its quarterly risk exposure reports, annual audits of its risk management program, and its business continuity and disaster recovery plan.

Pamela M. Geraghty of the Division of Swap Dealer and Intermediary Oversight and Meghan Tente of the Division of Market Oversight assisted with this matter.

The Division of Enforcement staff members responsible for this case are Michael Geiser, Peter Janowski, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan.

Enforcement Action Against Société Générale International Limited

On Monday, September 30, 2019, the CFTC filed and settled charges against Société Générale International Limited, a provisionally registered swap dealer, for failing to comply with its swap data reporting obligations as a swap dealer, failing to implement required policies and procedures, and related supervision failures. The order finds that Société Générale International’s swap data reporting failures were widespread and systemic, and occurred in all asset classes and across its reporting obligations under the CEA and Parts 20, 43, 45, and 46 of the CFTC’s regulations. The order further finds that Société Générale International failed to implement policies and procedures reasonably designed to obtain and record facts regarding whether its swap counterparties were U.S. persons, or a conduit affiliate or guaranteed affiliate of a U.S. person, and did not have an effective system to supervise certain activities related to its business.

The CFTC order imposes a $2,500,000 civil monetary penalty on Société Générale International and mandates its compliance with certain undertakings, including continuing its remediation efforts in relation to swap data reporting and updating the CFTC on its efforts and compliance.

The order recognizes that the Commission’s determination of the civil monetary penalty in this matter reflects a substantial reduction from the otherwise applicable penalty based upon Société Générale International’s self-reporting of violations to the Commission, its cooperation with the Division of Enforcement’s investigation, and its comprehensive remediation efforts, which included an analysis and identification of historical errors, implementation of a new swap data reporting architecture, and backreporting corrected data to a swap data repository.

The CFTC thanks and acknowledges the assistance of the National Futures Association with this matter.

The Division of Market Oversight staff members who assisted with this matter are David E. Aron, Thomas Guerin, Meghan Tente, and Owen Kopon. The Division of Swap Dealer and Intermediary Oversight staff members who assisted with this matter are Rajal Patel and Pamela Geraghty.

The Division of Enforcement staff members responsible for this action are Alejandra de Urioste, Chris Giglio, Patryk J. Chudy, Lenel Hickson Jr., and Manal M. Sultan.

Enforcement Action Against The Northern Trust Company

On Monday, September 30, 2019, the CFTC filed and settled charges against The Northern Trust Company, a provisionally registered swap dealer, for numerous violations of the CEA and CFTC regulations relating to swap reporting under Parts 23, 43 and 45 of the CFTC regulations. The order requires Northern Trust to pay a $1,000,000 civil monetary penalty, among other sanctions.

According to the order, over a period from 2013 through at least 2018, Northern Trust failed to correctly report hundreds of thousands of swap transactions to a swap data repository as required by the CEA and CFTC regulations. These swap reporting violations resulted from Northern Trust’s failure to adequately supervise its swap dealer. Contributing to the failure to supervise was that Northern Trust repeatedly hired compliance personnel for the swap dealer who lacked the specific technical expertise necessary to ensure swap dealer compliance.

The order recognizes Northern Trust’s substantial cooperation during the Division of Enforcement’s investigation, and remediation in the form of a substantially reduced civil monetary penalty.

The Division of Enforcement staff members responsible for this action are Jason T. Wright, Patricia Gomersall, Luke B. Marsh, and Paul G. Hayeck.

Enforcement Action Against NatWest Markets Plc

On Monday, September 30, 2019, the CFTC filed and settled charges against NatWest Markets Plc, formerly The Royal Bank of Scotland plc, a provisionally registered swap dealer, for failing to comply with its obligations to submit to the Commission accurate large trader reports (LTRs) for physical commodity swap positions, as required under Part 20 of the Commission’s regulations. According to the order, all or nearly all of the LTRs NatWest submitted to the Commission from July 2012 to June 2017 contained inaccuracies.

The order specifically finds that from July 2012 to June 2017, NatWest submitted LTRs that contained millions of errors in required data fields. These errors fell into dozens of categories, including missing data presented in a format inconsistent with CFTC requirements.

The CFTC order imposes an $850,000 civil monetary penalty on NatWest, among other sanctions. The order recognizes that the civil monetary penalty was reduced in light of NatWest’s cooperation and substantial remediation.

The Division of Market Oversight staff members who assisted with this matter are Owen Kopon, Kristin Liegel, and Jennifer Newman.

The Division of Enforcement staff members responsible for this case are Gabriella Geanuleas, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan.

Enforcement Action Against The Bank of New York Mellon

On Monday, September 30, 2019, the CFTC filed and settled charges against The Bank of New York Mellon, a provisionally registered swap dealer, for numerous violations of the CEA and CFTC regulations relating to swap reporting. BNYM is the world’s largest custody bank and asset servicing company. The order requires BYNM to pay a $750,000 civil monetary penalty, among other sanctions. The order recognizes BNYM’s substantial cooperation during the Division of Enforcement’s investigation of this matter and remediation in the form of a substantially reduced civil monetary penalty.

According to the order, from December 31, 2012 through at least 2018, BNYM failed to correctly report hundreds of thousands of swap transactions to a swap data repository as required by the CEA and CFTC regulations. BNYM’s swap reporting failures included failing to correctly report tens of thousands of foreign exchange (FX) swaps from December 31, 2012 through July 2, 2018, failing report tens of thousands of swap transactions with BNYM affiliates and, from December 31, 2012 through at least December 31, 2018, failing to correctly report bunched trades (transactions with investment managers acting as agents for one or more principals).

The Division of Enforcement staff members responsible for this action are Jason T. Wright, Patricia Gomersall, A. Daniel Ullman II, and Paul G. Hayeck.

Enforcement Action Against PNC Bank, National Association

On Monday, September 30, 2019, the CFTC filed and settled charges against PNC Bank, National Association (PNC), a provisionally registered swap dealer, for failing to comply with its swap reporting obligations as a swap dealer. According to the order, PNC failed to properly report legal entity identifiers (LEIs), primary economic terms, and continuation data to its swap data repository (SDR); failed to file large trader reports for its physical commodity swaps; and failed to timely report certain trades to its SDR. The CFTC order imposes a $300,000 civil monetary penalty on PNC, among other sanctions, for these reporting violations.

PNC’s reporting failures were in violation of the reporting requirements of Parts 20, 43, and 45 of the CFTC regulations.

The order recognizes PNC’s self-reporting before it knew the full extent of its violations and its full cooperation with the Division of Enforcement, the Division of Swap Dealer and Intermediary Oversight, and the Division of Market Oversight. The order also recognizes PNC’s remediation of its swaps reporting issues both on an ongoing basis and with respect to historical reports, including transactions no longer on PNC’s books.

Division of Market Oversight staff member Benjamin DeMaria and Division of Swap Dealer and Intermediary Oversight staff members Pamela M. Geraghty, Thomas J. Bloom, and Kurt J. Harms assisted in this matter.

The Division of Enforcement staff members responsible for this matter are Trevor Kokal, David C. Newman, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan.

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