August 19, 2015
CFTC Orders Swap Dealer INTL FCStone Markets, LLC to Pay a $200,000 Civil Monetary Penalty for Failure to Supervise Swaps Trading in Violation of CFTC Regulation 23.602
Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today filed and simultaneously settled charges against INTL FCStone Markets, LLC (FCStone), a provisionally registered Swap Dealer, for failure to diligently supervise traders in its Kansas City Energy Group (KCEG), imposing a civil monetary penalty of $200,000. FCStone is a subsidiary of INTL FCStone Inc., a financial services company based in New York, New York.
The CFTC Order finds that FCStone provided inadequate oversight of traders in its Kansas City Energy Group, lacked adequate policies and procedures to ensure that discretionary trading of customer accounts was appropriate and properly controlled, and failed to implement policies and procedures already in place. Such conduct violated CFTC Regulation 23.602, which requires swap dealers and major swap participants to diligently supervise their employees and establish and maintain systems to do so. This is the first CFTC enforcement action charging violations of Regulation 23.602, which imposes supervision standards specifically applicable to swap dealers.
According to the CFTC’s Order, from at least January 2013 through July 21, 2013 (the relevant period), traders in FCStone’s KCEG often obtained verbal authorization to enter into discretionary trades, although FCStone’s written compliance procedures required written authorization if a trader exercised discretion over customer trades. Moreover, the Order finds that FCStone did not have sufficient procedures or controls in place to monitor discretionary trading during the relevant period. Although FCStone’s policies and procedures provided for an individual with supervisory duties to work on the KCEG’s Swaps Sales desk, trading activities were not closely or regularly monitored. For example, the Order finds that of FCStone’s traders, Gregory Evans engaged in 30 unauthorized trades in a non-discretionary account, resulting in customer losses of approximately $1.2 million during the relevant period (see CFTC Press Release and Consent Order 7187-15, June 16, 2015). FCStone’s lack of supervision contributed to Evans engaging in unauthorized trading without detection for a period of several months, according to the Order.
In addition to imposing the civil monetary penalty, the Order also requires FCStone to cease and desist from further violations of CFTC Regulation 23.602, as charged.
CFTC Division of Enforcement staff members responsible for this action are Sophia Siddiqui, Jonah E. McCarthy, Dmitriy Vilenskiy, John Einstman, Rachel Hayes, and Paul G. Hayeck. Kevin Piccoli, Thomas J. Bloom, and Lauren Fulks from the CFTC’s Division of Swap Dealer and Intermediary Oversight also assisted with this matter.
Last Updated: August 19, 2015