Commentaries

Bridging the Week by Gary DeWaal: August 22 to 26 and August 29, 2016 (Summarily Barred; False Performance Data; Inadequate Disclosure; The Grass Is Greener)

Jump to: Bridging the Week    Managed Money    Totally Irrelevant (But Is It?)    Block Trades and EFRPs    Customer Protection    AML and Bribery    Uncleared Swaps    Cleared Swaps    Investment Advisers   
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Published Date: August 28, 2016

Last week, a nonmember was summarily barred from accessing all CME Group exchanges’ markets for 60 days for endeavoring to disguise that he was the controller of five trading accounts that were not in his name. In addition, 13 investment advisers agreed to settle charges brought by the Securities and Exchange Commission that they passed along to their own investors false performance data provided by an independent third party adviser. As a result, the following matters are covered in this week’s edition of Bridging the Week:

Note: Because of the US Labor Day holiday, the next edition of Bridging the Week will be September 12, 2016.

Video Version:

Article Version:

Briefly:

Legal Weeds: Designated contract markets are required by the Commodity Futures Trading Commission rule to have a disciplinary process that includes certain required elements that promote fairness, but may include an emergency process that permits a DCM to “impose a sanction, including suspension, or take other summary action against a person or entity subject to its jurisdiction upon a reasonable belief that such immediate action is necessary to protect the best interest of the marketplace.” (Click here to access the CFTC’s guidance regarding its Core Principle 13 for DCMs – Disciplinary Procedures.) Pursuant to this CFTC authority, DCMs, like CME Group exchanges, have adopted rules to permit summary denial of access to exchanges’ trading facilities “upon a good faith determination that there are substantial reasons to believe that such immediate action is necessary to protect the best interests of the Exchange.” (Click here to access CME Group Rule 413.A. See also ICE Futures U.S. Rule 21.02(f); click here to access.) Under these rules, there is typically a maximum period such summary ban may remain in effect. In the interim, a respondent may request a hearing before a hearing panel. In April 2015, CME Group summarily barred two traders – Nasim Salim and Heet Khara – from trading on any CME Group exchange for 60 days relying on its summary emergency suspension authority because of the respondents’ then current alleged spoofing activities. (Click here to access details in the article, “CME Group Summarily Suspends Trading Privileges of Two Traders Without Hearing for Alleged Spoofing and Non-Cooperation” in the May 3, 2015 edition of Bridging the Week.)

And more briefly:

Totally Irrelevant (But Is It?): I guess buyers and sellers in this marketplace will conclusively get to determine whether the grass is truly greener on the other side. I presume they each hope that is not the case.

For more information, see:

Affiliated Private Equity Fund Advisers Agree to US $52.7 Million Settlement for Inadequate Disclosure Regarding Fees and Loans:
https://www.sec.gov/news/pressrelease/2016-165.html

CFTC and FIA Object to CFPB Proposal to Ban Certain Arbitration Agreements to the Extent They Pertain to Commission-Regulated Activities:
https://www.regulations.gov/document?D=CFPB-2016-0020-3688
https://fia.org/sites/default/files/content_attachments/2016-08-22_CFPB_Arbitration_Provisions.pdf
https://www.regulations.gov/document?D=CFPB-2016-0020-1486

CFTC Grants SEF Registration to Seed SEF LLC:
http://www.cftc.gov/idc/groups/public/@otherif/documents/ifdocs/orgsefseedorderofreg160823.pdf

See also Seed SEF LLC website:
http://seedcx.com

Multiple Investment Advisers Sanctioned for Passing Along False Performance Claims of Another Adviser:

Representative Cases:
https://www.sec.gov/litigation/admin/2016/ia-4506.pdf
https://www.sec.gov/litigation/admin/2016/ia-4501.pdf
https://www.sec.gov/litigation/admin/2016/ia-4496.pdf

Nonmember Banned From Trading All CME Group Products for 60 Days Without a Hearing for Alleged Suspicious Trading Activities:
Cunningham Commodities:
http://www.cmegroup.com/notices/clearing/2016/08/16-ch-1601.html#pageNumber=1
FC Stone:
http://www.cmegroup.com/notices/clearing/2016/08/notice-of-disciplinary-action/16-ch-1604.html#pageNumber=1

LPS:
/ckfinder/userfiles/files/Gmail%20-%20Settlement%20of%20Charges%20Against%20LPS%20Futures%20LLC.pdf

Andrey Sakharov:
http://www.cmegroup.com/notices/disciplinary/2016/08/COMEX-16-0486-ANDREY-SAKHAROV.html#pageNumber=1
SG Americas Securities:
http://www.cmegroup.com/notices/clearing/2016/08/16-ch-1602.html#pageNumber=1

SEC Adopts Rules to Enhance Investment Advisers’ Disclosure, Including Derivatives Exposure, on Form ADV:
https://www.sec.gov/rules/final/2016/ia-4509.pdf

Security-Based Swaps May Be Aggregated in Initial Margin Calculations for Uncleared Swaps Says CFTC Staff:
/ckfinder/userfiles/files/August%2023%202016%20-%20CFTC-%20Request%20to%20Include%20Security-Based%20Swaps%20in%20Produc___-2(1).pdf

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of August 27, 2016. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP may represent one or more entities mentioned in this article. Quotations attributable to speeches are from published remarks and may not reflect statements actually made.

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ABOUT GARY DEWAAL

Gary DeWaal

Gary DeWaal is currently Special Counsel with Katten Muchin Rosenman LLP in its New York office focusing on financial services regulatory matters. He provides advisory services and assists with investigations and litigation.


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