November 21, 2012
Washington, DC ― The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Cantor Fitzgerald & Co., Inc. (Cantor), of New York, N.Y., a registered futures commission merchant (FCM), for failing to maintain sufficient funds in its customer segregation account for a period of three days, for failing to provide the CFTC timely notice of its under-segregation, as required, and for related supervisory failures.
The CFTC order imposes a $700,000 civil monetary penalty and a cease and desist order on Cantor, and requires Cantor to undertake certain improvements to its internal controls to prevent future under-segregation violations and notification failures.
Cantor, as a registered FCM, is required pursuant to the Commodity Exchange Act and CFTC regulations to segregate customer funds from its own funds and on a daily basis compute the amount of customer funds required to be segregated. The CFTC order finds that, on three consecutive days, January 24 to January 26, 2012 (the “relevant period”), Cantor failed to maintain adequate segregated customer funds due to an inadvertent transfer of $3 million from its customer segregated funds account, instead of from Cantor’s house account, as intended. According to the order, on each of the three days, Cantor made the daily required computation to determine the amount of customer funds it needed to be on deposit to meet its segregation requirements. However, Cantor failed to realize it was under-segregated until January 27, 2012, when the Cantor operations department employee primarily responsible for determining Cantor’s daily segregation requirements returned to work after being out unexpectedly. The Cantor operations department immediately corrected the segregation deficiency and the firm came back into compliance with its segregation requirements by transferring the $3 million back into the customer segregated funds account.
The order further finds that pursuant to Cantor’s internal procedures, each day during the relevant period, the electronic spreadsheet containing the daily computation reflecting the under-segregation was distributed internally via email to several persons within Cantor. However, Cantor employees responsible for notifying the CFTC and the Chicago Mercantile Exchange (CME), its Designated Self-Regulatory Organization (DSRO), of the under-segregation failed to review the spreadsheet and, therefore, were unaware that the customer account was under-segregated. The order also finds that Cantor staff failed to notify the appropriate senior management of the under-segregation as required by Cantor’s internal procedures, through an “escalation email.”
According to the order, Cantor’s senior management did not learn of the segregation deficiencies until the CME discovered them during a routine audit. At that point, on March 13, 2012, Cantor provided the required, and long overdue, notification of the under-segregation to the CFTC and the CME.
The order also finds that Cantor had related supervisory failures by not having an adequate system of internal controls and procedures to ensure that daily segregation calculations were reviewed and deficiencies noted, appropriately escalated, and addressed. Cantor also lacked sufficient procedures and training concerning the regulatory requirements relating to segregation of customer funds and failed to have adequate procedures and controls relating to the transfer of funds to and from customer segregated funds accounts.
The CFTC’s Division of Enforcement appreciates the cooperation of the CME in this matter.
CFTC Division of Enforcement staff responsible for this case are James H. Holl, III, Brandon Tasco, Gretchen L. Lowe, Richard Wagner, and Vincent A. McGonagle. The Division of Swap Dealer and Intermediary Oversight also assisted in this matter.
Last Updated: November 21, 2012