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CFTC Orders Texas Commodity Trading Advisor to Pay $200,000 for Failing to Register as a Swap Execution Facility

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Washington, D.C. — The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against Asset Risk Management, LLC (ARM), a registered Commodity Trading Advisor headquartered in Houston, Texas, for failing to register as a swap execution facility (SEF). The order requires ARM to pay a $200,000 civil monetary penalty and to cease and desist from any further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

“Failing to register as required by the CEA impairs the CFTC’s ability to monitor swap markets and threatens the integrity of the industry,” said Acting Director of Enforcement Gretchen Lowe. “The Division of Enforcement will continue to bring actions against firms that are operating unregistered swap execution facilities, including those offering non-electronic methods of trading.”

Case Background

The order finds that from approximately September 2017, ARM operated an unregistered SEF that provided clients the ability to execute swaps by accepting bids and offers made by multiple participants on a trading system or platform in various swap tenors and volumes. To communicate with clients and counterparties and execute the swaps, ARM used various means of interstate commerce including phone, instant messaging, and email.

During the relevant period, ARM often recommended that clients 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 request for swap pricing from a client and then submitted the pricing request (and sometimes other terms) to counterparties with whom the relevant client had an ISDA agreement. After potential swap counterparties responded to ARM with a proposed price, ARM, if authorized by the client, would approve or reject a price based on the client’s pre-approved threshold, including by communicating “done” via chat or email. ARM would then separately confirm the swap execution with the client. If ARM did not have authority to execute the swap on behalf of the client, ARM would typically join the client on a phone call with the relevant counterparty, during which ARM’s client would agree to the terms.

The Division of Enforcement staff responsible for this matter 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 Division of Market Oversight, and Amanda Olear and Pamela Geraghty of the Market Participants Division.

* * * * * * *

On September 29, 2021, the Division of Market Oversight issued a staff advisory regarding certain trading activities that may trigger compliance with the SEF registration requirement in the CEA and CFTC regulations. The advisory stated that an entity may need to register as a SEF when:

  1. facilitating trading or execution of swaps through one-to-many or bilateral communications;
  2. facilitating trading or execution of swaps not subject to the trade execution requirement in CEA section 2(h)(8);
  3. providing non-electronic means for the execution of swaps; or
  4. currently registered with the CFTC in some other capacity, such as a commodity trading advisor or an introducing broker, if its facility falls within the SEF definition. A determination of whether a particular facility is required to register depends on all of the relevant facts and circumstances of the facility’s operations. The advisory is available at CFTC Staff Letter No. 21-19.

The CFTC strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.

Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the CFTC Whistleblower Office. Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.

This news item was originally published by the Commodity Futures Trading Commission (CFTC US). For more information, see the Source Link.

Regulator Information

Abbreviation: CFTC
Jurisdiction: USA

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