Swap Dealer Settles CFTC FX Pre-Hedging Charges
A swap dealer settled CFTC charges for failing to appropriately disclose certain "pre-hedging" activities in FX transactions in violation of CFTC external business conduct requirements.
As described in the Settlement Order, the CFTC found that the firm engaged in "anticipatory" hedges of certain deal-contingent foreign exchange transactions without appropriate disclosure to the counterparty. As a result, the CFTC concluded that the firm violated CEA Section 4s ("Registration and regulation of swap dealers and major swap participants") and CFTC Regulations 23.431 ("Disclosures of material information"), 23.433 ("Communications-fair dealing"), and 23.602 ("Diligent supervision").
To settle the charges, the firm agreed to pay (i) restitution in the amount of $1,847,183 and (ii) a civil monetary penalty of $5,000,000. The CFTC said that the firm already undertook remedial measures to comply with the relevant regulations.
Commentary
This enforcement matter serves as a reminder from the CFTC that swap dealers should carefully review and consider transaction disclosures, and that the disclosures should be tailored to the firm's business and regularly reviewed for accuracy and completeness.