Bridging the Week by Gary DeWaal: July 6-10 and 13, 2015 (MF Global; John Corzine; Money Passes; REMIT; G-IBs)

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Published Date: July 12, 2015

Enforcement actions, private litigation and guidance regarding the criteria for regulatory investigations took center stage in developments impacting the financial services industry last week. In one disciplinary action brought by the Financial Industry Regulatory Authority, there were no fines – apparently in light of the “extraordinary cooperation” of the named broker-dealers. In the publication of “Enforcement Referral Criteria,” the UK Financial Conduct Authority provided insight into its deliberation process for commencing investigations for possible wrongdoing. As a result, the following matters are covered in this week’s edition of Bridging the Week:

(Click here to access information on the new New York State BitLicense regulations that impact any firm conducing a virtual currency business activity involving New York or a NY resident in the article “New York BitLicense Regulations Virtually Certain to Significantly Impact Transactions in Virtual Currencies” in the July 8, 2015 Advisory by Katten Muchin Rosenman LLP.)

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Compliance Weeds: Many futures exchanges have express prohibitions against executing transactions designed to pass money between accounts (Click here, for example, to access CME Rule 432.G and here to access ICE Futures U.S. Rule 4.02(f).) Typically such transactions are executed non-competitively and may violate other exchange rules too (e.g., pre-execution communications. Click here to access the relevant CME Group Market Regulatory Advisory Notice.)

My View: There were no monetary sanctions other than disgorgement ordered by FINRA in connection with these disciplinary actions – and it appears that each broker-dealer was in the process of returning overcharged fees to the customers in any case after discovering and self-reporting their mistakes. This was a judicious application of FINRA’s discretion and hopefully can be repeated by FINRA and other regulators in other disciplinary proceedings where firms discover regulatory breaches on their own, fix them voluntarily, and make recompense to each detrimentally impacted customer (if any). To also assess civil penalties in such circumstances seems overkill. Unfortunately, inadvertent mistakes happen and responsible firms should be encouraged to correct them – not penalized!

Compliance Weeds: Under guarantee agreements that futures commission merchants are required to enter into with a guaranteed introducing broker to excuse such IB from complying with minimum CFTC capital requirements, a guarantor FCM must agree to be jointly and severally liable with the G-IB for all violations by the G-IB under relevant law “with respect to the solicitation of and transactions” involving all customer accounts introduced by the G-IB. (Click here to access form of guarantee agreement.) Under National Futures Association rule, an FCM is similarly responsible for all “acts and omissions” of a G-IB which violate NFA requirements. (Click here to access NFA Rule 2-23.) To help minimize potential liability, guarantor FCMs must effectively monitor G-IBs like branch offices. Although at least one annual on-site audit is required to be conducted by the guarantor FCM of its G-IB, more frequent inspections and monitoring should be undertaken. (Click here for an NFA interpretive notice regarding the supervision of G-IBs and branch offices.)

And more briefly:

For more information, see:

Alleged Fictitious Sales to Facilitate Improper Money Pass Prompts CFTC Injunctive Action and Asset Freeze:

Restraining Order:

Basel Committee Updates Leverage Ratio Framework FAQs:

CFTC Seeks Public Comment on Increased Electricity Position Limits Proposed by ICE Futures U.S.:

CME Group Updates Block Trade MRAN and TAS Rules:

Block Trades:

TAS (Sample: CBOT/CME):

FCA Publishes Criteria Used for Formal Enforcement Investigations:

Five Broker-Dealers to Pay Back More Than US $30 Million to Retirement Accounts and Charities Charged Too Much for Mutual Funds:

Raymond Jones:
Wells Fargo:

G-IB Banned From Business by NFA and Principals Suspended for Charging Too Much to Customers:


ICE to Provide REMIT Reporting for Relevant Wholesale Energy Market Transactions Executed on ICE European Marketplaces:

Questions and Answers:

MF Global Investors Reach US $64.5 Million Settlement With John Corzine and Other MF Global Officers and Directors Related to Firm’s Collapse:

NFA Enhances CPO Form PQR and CTA Form PR:

Public Comment Sought by CFTC for OTC Clearing Hong Kong Request to Be Exempted From Registration as DCO:

Santander Holdings Agrees With Fed to Broad Plan to Address Alleged Governance, Risk Management and Capital Planning Deficiencies:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of July 11, 2015. 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. Views expressed by the author are not necessarily the views of Katten or any of its directors or officers. Photographs by Gary DeWaal.

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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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