FCM Settles Charges for Gaps in Trade Surveillance

An FCM settled CFTC charges for failing to capture billions of orders in its surveillance systems.

According to the Order, in 2021, while onboarding a new trading exchange, the FCM discovered gaps in its existing trade surveillance. The CFTC stated that the firm conducted a "global review" of its surveillance processes and identified "data gaps of varying degrees" impacting the surveillance of trading on various global trading venues. The CFTC said these gaps had multiple causes, including the firm's failure to "ingest direct-from-exchange order and trade data into a third-party surveillance system" that the firm " began using to conduct futures trade surveillance." The CFTC said that the oversight resulted in the firm's "fail[ing] to capture... billions of orders" in its surveillance systems, particularly on a "U.S. designated contract market and certain registered foreign boards of trade [accessible] to U.S. customers."

As a result, the CFTC found that the firm failed to supervise its business as a CFTC registrant, in violation of CFTC Rule 166.3 ("Supervision").

To settle the charges, the firm agreed to (i) cease and desist from violating Rule 166.3, (ii) pay a civil monetary penalty in the amount of $200 million and (iii) additional undertakings, including the appointment of a compliance monitor.

In a separate statement, CFTC Commissioner Kristin N. Johnson warned of the "increasing global reliance on third-party service providers to perform essential compliance and risk management functions" which "heightens the risk of interoperability or incompatibility in pairing disparate software systems." Ms. Johnson said that "[e]ven the most carefully crafted compliance programs—celebrated for integrating innovative, advanced, and even artificial intelligence-driven technologies—may fail."