The CFTC charged a financial services firm that was registered as a futures commission merchant ("FCM") with participating in unlawful wash trades and related supervisory failures.
In its Order instituting proceedings, the CFTC asserted that the FCM:
- executed and confirmed the execution of numerous Exchanges of Futures for Physical Transactions ("EFPs") in agricultural and soft commodities for and on behalf of its clients that are "wash sales," and reported these EFPs to the Chicago Mercantile Exchange and the Chicago Board of Trade;
- caused prices to be reported, registered or recorded that were not "true and bona fide prices," because the EFPs were not completed in accordance with the written rules of the CME and CBOT and, therefore, were not bona fide EFPs;
- executed noncompetitive trades for customers by accepting and transmitting EFP orders for the same contract and quantity, and for the same or a similar price, with the buyer and seller for each EFP under the same common control and ownership; and
- failed to supervise its employees' handling of the transactions diligently, and to implement and maintain adequate policies and procedures for detecting and deterring the execution of EFP wash trades.
The CFTC's Order required the FCM to (i) pay a $750,000 civil monetary penalty, and (ii) improve its internal controls and procedures in order to detect and prevent execution, clearing and reporting to an exchange of non-bona fide EFPs.
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