Bridging the Week by Gary DeWaal: April 3 to 7 and 10, 2017 (Advancing Nominee; Third Party Funds’ Transfers; Record Retention)

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Published Date: April 09, 2017

The Senate Banking Committee approved Jay Clayton’s nomination as chairman of the Securities and Exchange Commission, and he now awaits a final vote by the full Senate. Meanwhile, the Hong Kong Securities and Futures Commission sanctioned another broker for undetected and unreported third party transfers to and from clients’ accounts. As a result, the following matters are covered in this week’s edition of Bridging the Week:

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Article Version

Very Briefly:

Compliance Weeds: Third party funds transfers are always potential red flags. Some are warranted – e.g., routine payments to third party advisers in a discretionary account. But all non-approved third party receipts and payments not explained and approved in advance should be investigated if not outright prohibited as well as considered for suspicious account reporting.

Legal Weeds: There is a tension between typical language in designated contract rules that require sponsoring clearing members to maintain or cause to be maintained required audit trails for their customers’ electronic orders. (Click here to access Ch. 5, Sec. 1(f)(v) of NFX Rules) and the relevant records rule of the Commodity Futures Trading Commission, which speaks in terms of the need to “keep” such records (emphasis added). Click here to access and contrast CFTC Rule 1.35(a)(1).) This potential conflict was highlighted in 2015 when CME Group amended its audit trail retention requirements and added the following caveat: “Nothing herein relieves any of the above-referenced firms from compliance with the applicable recordkeeping provisions of CFTC Regulations.” (Click here to access CME Group Market Regulation Advisory Notice: Order Routing/Front-End Audit Trail Requirements (December 14, 2015).)

For further information:

Another Broker Sanctioned by HK SFC for AML Violations Related to Money Transfers Between Clients and Third Parties:

Broker-Dealer Agrees to Pay US $380,000 to Resolve FINRA TRACE Reporting Deficiency and Supervisory Breakdown Allegations:

Canadian Securities Regulators Seek Guidance for Business Conduct Rules for Derivatives Dealers and Advisers:

CFTC Staff Excuses University Management Company and Fund Directors From CPO Registration as Interests Aligned With Investors:

ESMA Issues Guidance on Market Structure Under MiFID II:

Independent Introducing Broker Settles NFA Charges Regarding Capital Deficiency and Notification Failure:

In Search of Market Intelligence – Acting CFTC Chairman Appoints First Chief Market Intelligence Officer:

NASDAQ Futures Issues Audit Trail Guidance and Amends Some Requirements:

CME Group Clearing House Risk Committee Charges Two Clearing Members With Violating Exchange Rules:

SEC Chairman Nominee Advances:

Two Traders Acquitted in UK LIBOR Criminal Trial:

Warehouse Settles Disciplinary Proceeding Brought by LME for Falsifying Documents for USD $1.4 Million Fine:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of April 8, 2017. 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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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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