The US securities regulator has fined global commodities brokerage, Marex North America LLC and its UK sister, Marex Spectron $370,000 in collective civil penalties for its alleged failure to maintain net capital above regulatory minimums.
The CFTC said that during a 33-month period, Marex would have been undercapitalized with net capital deficits ranging from $4 million to $75 million, which occurred on separate dates. The deficiencies arose because Marex did not take required deductions when calculating its obligations under an agreement the company signed to guarantee a revolving credit line for an affiliated company.
If the affiliate’s drawdowns had been correctly taken as deductions, the firm would have inflows of cash that exceeded the amounts it should keep investing with existing operations.
The CFTC further alleges that UK-based Marex Spectron failed to maintain its required minimum net capital during various time periods when it was bound as a guarantor for the benefit of the affiliated company. Apparently, the company did not consult its compliance team as to how these transactions would impact its net capital position, which had resulted in deficits ranging between $14 million to $51 million.
Taken together, both Marex brands operated while they lacked the required minimum net capital in amounts ranging from $10 million to $95 million.
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“If the affiliate’s drawdowns had been correctly taken as deductions, Marex, as a guarantor, would have been undercapitalized in the months when there were drawdowns. Likewise, Marex Spectron would have been undercapitalized in 6 of the 10 six-month periods Marex Spectron was bound as a guarantor,” the CFTC said.
While introducing brokers are required to report their adjusted net capital every six months, neither Marex nor Marex Spectron deducted the guaranteed drawdowns in their calculation in order to reflect the potential effect of its actions on net capital.
Earlier today, the CFTC hit three registered introducing brokers with $360,000 in regulatory fines for similar lapses, namely the failure to meet minimum capital requirements.
The CFTC found that Texas-based EOX Holdings LLC, Futures International LLC of Chicago, and London-headquartered OTC Europe LLP were net-capital deficient, ranging between $9 million and $25 million.
The watchdog said firms should look closely at their transactions with affiliates as it may not go under the same level of compliance review as transactions with third parties.