CFTC Orders Connecticut-Based Registered FCM to Pay a $225,000 Civil Monetary Penalty
Commentary by Bob Zwirb
The CFTC issued an Order requiring Interactive Brokers LLC ("IB"), an FCM and Retail Foreign Exchange Dealer, to pay a $225,000 civil monetary penalty for violations of the CFTC's segregation and supervision requirements. IB was faulted for failing to compute daily, on a currency-by-currency basis, the amount of customer funds required to be on deposit and the amount of customer funds actually on deposit in segregated accounts on behalf of commodity and options customers; failing to maintain sufficient U.S. dollars ("USD") in customer segregated accounts in the United States to meet all USD-denominated obligations, improperly covering a portion of its USD commodity futures and options customer obligations with Japanese yen and Swiss francs to maximize its interest earnings; and failing to adequately supervise its employees in connection with this matter, in violation of CFTC Rules 1.32(a), 1.49(b) (e)(i), and 166.3.
As a result of these shortcomings, IB, according to the CFTC, did not retain enough USD in segregation to meet its USD-denominated obligations to its commodity customers - with the USD segregation requirement shortfall ranging from approximately $90 million to $300 million during that time.
View Order in full here (links externally to CFTC website).
See also: Press Release.
Commentary
The action taken against IB, an on-line brokerage firm with more than 140,000 customer accounts, illustrates the seriousness with which the CFTC views violations of its segregation requirements, which are intended to impose a trust-like requirement upon FCMs to protect funds used for the purpose of securing customer positions. In light of the fact that those requirements are increasingly being extended to swaps, regulated intermediaries should take note. The fairly significant fine was assessed notwithstanding the fact that IB discovered and self-reported this violation to the CFTC last year and at all relevant times had excess segregated funds ranging from $48.4 million to $455.3 million.