CFTC Fines Chicago FCM $150K over Several Historical Reporting Violations

Chicago-based Futures Commission Merchant (FCM) Cunningham Commodities LLC (Cunningham) and one of the company’s controllers have been ordered to jointly pay a $150,000 penalty by the U.S. Commodities Futures Trading Commission (CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term) in connection with several reporting violations, according to the regulator's press release dated May 9th.

The CFTC order found that Cunningham violated CFTC regulations when it failed to promptly notify the agency of an overnight deficiency of more than $3.4 million in a segregated account as well as a deficiency in another account that resulted from a cash transfer error on March 10th 2014. The order cited two unrelated incidents related to special account position reports during 2013 and 2014, according to the update.

Delay to notify CFTC

According to the CFTC order, Cunningham corrected the error the following morning but didn’t notify the CFTC until the day after on March 12th 2014. Around the same time, the FCM was notified by CME’s audit committee about the nearly $5 million discrepancy between the amount in segregated customer funds held and the amount reported.

The CFTC order also found that Salvatore Carmen Russo was liable as Cunningham’s Controller and head accountant during that time, and had helped conceal the shortfall by failing to immediately notify the CFTC. According to information on the National Futures Association (NFA), Russo was pending as a principal with the firm at the end of February 2013 yet that pending status was withdrawn on July 2nd of the same year.

Cunningham provides options and futures trading capabilities to clients via its Cunningham Trading System (CTS) platform, and the firm holds nearly $70 million in segregated funds according to information on its website currently. The company is a long-standing FCM registered since 1982, and has had about 27 regulatory actions from exchanges since inception which mostly resulted in minor administrative fines with the latest amount of $150,000 representing the largest and the first that the company received from the CFTC. In addition, the firm holds several million dollars in excess regulatory capital.

Additional vendor-blamed error

In addition, the CFTC found an unrelated violation the firm made in connection with account position reports, as a 3rd party software vendor was cited as having failed to properly set up the trading instruments for reporting which contributed to additional violations for the FCM, including certain client positions in Comex silver futures and soybean options between 2013 and 2014 respectively.

The special account position reports are used by the CFTC to help ensure that traders don’t build excessive positions that may otherwise create a corner in the market or unfair advantage, and based on aggregate trade size limits which can vary across different commodity futures contracts based on thresholds.

The Comex silver futures contract positions that required a special account position report from Cunningham that the CFTC cited was related to a roughly six-month period starting in November 2013, according to the report. The soybean options contracts report that was cited as having been failed to be filed by the firm was for a two week period during July 2014. The news follows the CFTC yesterday releasing the amount of funds held by FCM's for the second month of this year, as covered by Finance Magnates.