A futures commission merchant ("FCM") settled CFTC charges for supervisory failures concerning the handling of customer accounts "by not adequately preparing and configuring its electronic trading system" before a negative futures price event affecting sweet crude oil futures contracts. (See related coverage.)
In the Order, the CFTC found that the FCM, when notified of the potential for negative prices on the benchmark West Texas Intermediate light, sweet crude oil futures contracts, did not adequately prepare its electronic trading system to (i) receive negative prices in the relevant contracts and (ii) enforce initial margin requirements. As a result of these lapses, the firm's customers holding long positions experienced material trading losses. The CFTC determined that the FCM violated CFTC Rule 166.3 ("Supervision").
To settle the charges, the FCM agreed to (i) cease and desist from future violations, (ii) pay a $1.75 million civil monetary penalty and (iii) pay restitution in the amount of $82,570,000. The Order noted that the restitution would be credited, since the FCM had already compensated affected customers.
CFTC Commissioner Dawn DeBerry Stump expressed concern that the CFTC Division of Enforcement did not credit the FCM for self-reporting its misconduct. Ms. Stump explained that, under the Division's enforcement advisory on self-reporting, voluntary self-disclosure includes one made (i) "prior to an imminent threat of exposure of the misconduct" or (ii) "within a reasonably prompt time after the company becomes aware of the conduct." While Ms. Stump noted that the FCM did not self-report prior to a threat that appeared imminent given the "plentiful" news sources heralding the negative crude oil futures prices, she stated that the FCM's April 21, 2020, communication of supervisory lapses satisfies the second condition. Ms. Stump characterized the denial of self-reporting credit as "unwarranted stinginess."
Primary Sources
- CFTC Order: Interactive Brokers LLC
- CFTC Press Release: CFTC Orders Interactive Brokers LLC to Pay a $1.75 Million Penalty for Supervision Failures
- CFTC Statement, Dawn D. Stump: Concurring Statement Regarding Settlement with Interactive Brokers LLC
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
