The CFTC settled charges against a futures commission merchant ("FCM") for failing to adequately supervise the processing of customer fees for trading and clearing Chicago Mercantile Exchange products. The CFTC determined that the FCM:
- failed to implement and maintain adequate systems for reconciling the amounts in invoices from exchange clearinghouses with those of fees charged to customers through its back-office accounting software;
- failed to pass fee discounts and exchange rebates on to customers; and
- consequently, overcharged customers in an aggregate amount of approximately $1.1 million.
The CFTC order required the FCM to pay an $800,000 civil monetary penalty, and to cease and desist from violating the CFTC regulation that governs diligent supervision. In a recent press release, the CFTC noted that this action is the second it has brought against a clearing firm for supervisory failures over fee processing.
Commentary / Bob Zwirb
The CFTC noted that the process for computing discounts and crediting them to customer accounts is "typically complicated because of the myriad applicable rates, surcharges and fee structures." Despite the CFTC's acknowledgment of that complexity, the deficiencies' discovery by an independent service provider hired by the FCM to review its fee reconciliation process, and the FCM's subsequent hiring of another third-party service provider to assist it on a daily basis in identifying discrepancies between the amounts in invoices from exchange clearinghouses and those that it charged its customers for exchange fees, the FCM still was found to have violated its supervisory obligations. This decision is yet another illustration of the fact that registrants must be especially diligent in carrying out their responsibilities under the CEA and CFTC rules.
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