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The CFTC settled charges against a Futures Commission Merchant ("FCM") and its Chief Executive and Chief Risk Officers for: (i) failing to diligently supervise the handling of certain commodity interest accounts; (ii) having deficient risk management and credit risk practices; and (iii) knowingly making inaccurate statements to the CFTC through the submission of required risk manuals and the Annual Chief Compliance Officer's Report. The CFTC noted that these charges mark its first action enforcing CFTC Rules 1.11 and 1.73, which involve risk management program and supervision obligations for FCMs and clearing FCMs' risk management obligations, respectively.
The Order found that the respondents failed to take adequate supervisory measures after being notified by three exchanges of possible unlawful trading by one of its customers. The Order also found that although the FCM possessed written policies and procedures that appeared to comply with Rule 1.11, it did not, in practice, follow them. Among other things, the CFTC faulted the FCM for failing to place limits on the customer's trading based on prudent risk control measures.
The CFTC required the FCM and two of its executives to pay, jointly and severally, a $1.5 million civil monetary penalty.
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