A dually-registered futures commission merchant ("FCM") and retail foreign exchange dealer ("RFED") settled CFTC charges for net capital rule violations.
The violations primarily stemmed from charges that the firm included unsecured receivables from a non-qualifying entity in a calculation of its capital and failed to notify NFA or the CFTC of a significant capital withdrawal as required. As a result of failing to notify the CFTC of capital withdrawals, the CFTC found that the FCM violated CFTC Rule 5.7 ("Minimum financial requirements for retail foreign exchange dealers and futures commission merchants offering or engaging in retail forex transactions") and CFTC Rule 1.17 ("Minimum financial requirements for futures commission merchants and introducing brokers"), as well as CFTC Rule 5.6 ("Maintenance of minimum financial requirements by retail foreign exchange dealers and futures commission merchants offering or engaging in retail forex transactions").
The CFTC also found the firm in violation of CFTC Rule 166.3 ("Supervision") for supervisory failures relating to the net capital and related reporting violations.
To settle the charges, the FCM agreed to (i) cease and desist from further violations, (ii) pay a $500,000 penalty, and (iii) comply with further conditions and undertakings outlined in the Order.
Commentary
As described on page 3 of the Order, the case stems from the fact that the firm treated receivables from a swap dealer that was not a qualified entity under Rule 5.7(b)(2)(iii) as though they were receivables from an affiliated FCM of the swap dealer that custodied the collateral posted in connection with the relevant transactions.
Perhaps the CFTC should consider whether swap dealers should be on the list in Rule 5.7(b)(2)(iii), particularly as they will soon also be subject to capital requirements imposed by the CFTC.
Primary Sources
CFTC Order: OANDA Corporation- CFTC Press Release: CFTC Orders Toronto-Based Firm to Pay $500,000 for Violating Capital, Reporting, and Supervision Rules
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