CFTC’s First Enforcement Action Charging Swaps Dealer with Failure to Supervise Settled

A provisionally registered swap dealer agreed to a settlement of CFTC charges against it for failing to diligently supervise the traders in one of its subsidiary groups. The CFTC stated that this enforcement action was the first in which it charged a party with violations of CFTC Regulation 23.602, which imposes supervision standards specifically applicable to swap dealers.

The CFTC found that the swap dealer: (i) provided inadequate oversight of the traders in its subsidiary group; (ii) lacked adequate policies and procedures to ensure that the discretionary trading of customer accounts was appropriate and properly controlled; and (iii) failed to implement policies and procedures that were already in place. The CFTC also found that the swap dealer's traders "often obtained verbal authorization to enter into discretionary trades, although its written compliance procedures required written authorization if a trader exercised discretion over customer trades."According to the CFTC, the trader made money for its customers at the expense of the firm on many of the trades. It did so fraudulently, by charging customers less than the firm had paid to enter into the transactions. Ultimately, the unsupervised trading resulted in losses to the firm's customers (which the firm reimbursed as part of the enforcement action) and to the firm itself.

See: CFTC Order; CFTC Press Release.