September 30, 2010
CFTC Sanctions Alaron Trading Corporation $260,000 for Supervisory Failures
CFTC finds that Alaron failed to supervise diligently its employees’ handling of commodity interest accounts in connection with “give-up” agreements.
Washington, DC -- The Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Alaron Trading Corporation (Alaron), a Chicago-based futures commission merchant and commodity trading advisor.
The CFTC order, entered on September 30, 2010, finds that, from at least January 2008 to at least October 2008, Alaron failed to supervise diligently its employees’ handling of commodity interest accounts. Specifically, the order finds that Alaron had inadequate procedures for managing risks associated with customer accounts trading via “give-up agreements,” which are arrangements in which trades for a customer are handled by an “executing broker” and then “given up” to the “clearing broker” carrying the customer’s account, such as Alaron. Alaron’s failure to have adequate give-up procedures led it to fall below its net capital requirements in July 2008, according to the order.
The CFTC order requires Alaron to pay a $260,000 civil monetary penalty, allows Alaron to withdraw its CFTC registrations and accepts Alaron’s agreement to never apply for registration or claim exemption from registration with the CFTC in any capacity.
The CFTC order finds that Alaron did not diligently manage the risk associated with accepting customer trades through the give-up process. Alaron specifically failed to review trades that were sent to Alaron through the “give-up screen” prior to acceptance, review give-up trades in real-time and during the overnight trading session and put a stop on the customer’s trading account to ensure liquidation. According to the order, Alaron also failed to inform the parties to the give-up agreement that the customer was on liquidation status.
The order concludes that, as a result of Alaron’s supervisory failures, the Alaron customer was able to incur an approximate $4 million debit in July 2008. This debit caused Alaron to become under-segregated and fall below its net capital requirement.
The CFTC coordinated its investigation with, and was assisted by, the CME Group.
The CFTC Division of Enforcement staff members responsible for this case are Jennifer S. Diamond, Elizabeth M. Streit, Joy McCormack, Scott R. Williamson and Richard B. Wagner.
Last Updated: September 30, 2010