CFTC orders Texas Commodity Trading Advisor to pay $200,000 for not registering as swap execution service
washington d.c. – The Commodity Futures Trading Commission today issued an order concurrently filing and settling charges against Asset Risk Management, LLC (ARM), a registered commodity trading adviser headquartered in Houston, Texas, for not registering as a swap execution service (SEF). The order requires ARM to pay a civil penalty of $200,000 and to cease and desist from further violations of the Commodities Exchange Act (CEA) and CFTC regulations, as charged.
“Failure to register as required by the CEA undermines the CFTC’s ability to monitor exchange markets and threatens the integrity of the industry,” said Acting Chief Enforcement Officer Gretchen. Lowe. “The Enforcement Division will continue to take action against companies that operate unregistered swap execution facilities, including those that offer non-electronic trading methods.”
Background to the case
The order finds that beginning around September 2017, ARM operated an unregistered SEF that offered customers the ability to execute swaps by accepting bids and offers made by multiple participants on a trading system or platform. trading in various tenors and swap volumes. To communicate with customers and counterparties and execute swaps, ARM used various means of interstate commerce, including telephone, instant messaging and email.
During the relevant period, ARM often recommended that customers execute swap transactions in which the underlying commodity was natural gas, natural gas liquids or crude oil. In a typical swap transaction, ARM received a swap price request from a customer and then submitted the price request (and sometimes other terms) to counterparties with whom the relevant customer had an ISDA agreement. Once potential swap counterparties respond to ARM with a proposed price, ARM, if authorized by the customer, would approve or reject a price based on the customer’s pre-approved threshold, including communicating “done” via chat or by email. ARM would then separately confirm the execution of the exchange with the customer. If ARM did not have the authority to execute the swap on behalf of the customer, ARM typically joined the customer in a phone call with the relevant counterparty, during which ARM’s customer agreed to the terms.
The Law Enforcement Division personnel responsible for this case are Benjamin J. Rankin, Trevor Kokal, David Acevedo, Lenel Hickson, Jr., and Manal M. Sultan.
The Division thanks and acknowledges the assistance of Nancy Markowitz, Jonathan Lave and Matthew Jones of the Market Surveillance Division, and Amanda Olear and Pamela Geraghty of the Market Participants Division.
On September 29, 2021, the Market Surveillance Division issued a staff notice regarding certain trading activities that may trigger compliance with the SEF registration requirement in the CEA and CFTC regulations. The notice stated that an entity may need to register as an SEF when:
- facilitate the negotiation or execution of swaps through one-to-many or two-way communications;
- facilitate the trading or execution of swaps not subject to the transaction execution requirement of Section 2(h)(8) of the CEA;
- provision of non-electronic means for the execution of swaps; Where
- currently registered with the CFTC in another capacity, such as a commodity trading adviser or an introducing broker, if its establishment falls under the SEF definition. Whether a particular facility is required to register depends on all relevant facts and circumstances of the facility’s operations. The notice is available at CFTC Staff Letter No. 21-19.
The CFTC urges the public to verify a company’s registration with the CFTC before committing funds. If not registered, a client should be wary of providing funds to this company. A company’s registration status can be found using NFA BASIC.
Customers and others may report suspicious activity or information, such as possible violations of commodity trading laws, to the Enforcement Division through a toll-free hotline 866-FON-CFTC ( 866-366-2382), file a tip or complaint online, or contact the CFTC’s Whistleblower Bureau. Whistleblowers are eligible to receive between 10 and 30 percent of collected monetary penalties paid by the CFTC’s Client Protection Fund funded by monetary penalties paid to the CFTC by CEA violators.