FCM fined for submitting inaccurate reports

The CFTC has ordered New York-based Futures Commission Merchant (“FCM”) Newedge USA, LLC to pay $700,000 in civil monetary penalty. The FCM was found to have submitted inaccurate large trader reports to the Commission, and was in violation of a February 2011 order requiring the firm to reform and improve the precision and timeliness of its large trader reporting habits. Newedge is a subsidiary of a large global financial services firm. The CFTC receives and processes nearly 600,000 large trader position reports from it and other FCMs every day.

The order finds that from March through July 2011, Newedge’s reports contained a bevy of errors. These included

  • incorrect commodity codes;
  • over- and understated positions for omnibus accounts;
  • over- and understated large trader positions;
  • over- and understated open interest;
  • erroneous delivery notices;
  • positions reported as net when they were actually gross;
  • reports of exchanges in futures for physicals or cash positions/exchanges in futures for swaps positions that did not exist;
  • unreported positions.

Davis Meister, the CFTC Enforcement Director, said that “The Commission relies on large trader reports for many important Commission functions, such as monitoring compliance with speculative limit rules and assessing individual traders’ activities and their potential market power and risk in various commodity and swaps interests. Today’s action should send a message to the industry that the Commission expects its reporting rules to be strictly adhered to, and that the Commission will sanction those who fail to adhere to prior Commission orders.”

The order mandates that the FCM cease and desist its violations of the CEA, and to immediately implement and maintain reporting protocol that ensures future reports are in compliance with CFTC regulations. Newedge says it as already started revising its reporting methods, and brought in a consulting firm for assistance.

Read more about this CFTC enforcement action.

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