The U.S. Commodity Futures Trading Commission (CFTC) today settled charges against Chicago futures broker Advantage Futures which agreed to pay $1.5 million over claims that it failed to supervise certain commodity interest accounts. The FCM merchant was also charged with deficient risk management and credit risk practices and for knowingly making inaccurate statements to the U.S. regulator.
The watchdog also settled charges against Advantage’s CEO Joseph Guinan, and former Chief Risk Officer William Steele for failing to supervise Advantage’s risk management program.
Advantage Futures LLC is one of the biggest futures commission merchants (FCMs) based in Chicago. An FCM is an individual or organization which solicits orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts or swaps and at the same time accepts money or other assets from customers.
The U.S. derivatives regulator’s order requires Advantage, Guinan, and Steele to pay joint restitution of $1.5 million. In addition to the fiscal penalties, the order imposes compliance with undertakings to improve the implementation of its policies, procedures, and oversight practices to detect violations of the CEA and regulations.
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Despite being on notice from three exchanges that it had a customer who was engaging in a problematic pattern of trading in several contract markets, consistent with spoofing and/or manipulative or deceptive trading, Advantage did not investigate the identified trading activity. However, the company did not allow the customer to continue trading the particular futures contracts identified by the exchanges.
In addition, despite the exchanges independently notifying Advantage that it looked like the trader was spoofing, Advantage did not otherwise increase scrutiny over the customer’s trading in other markets. As a result, the customer continued to engage in the suspect trading activities.
According to the complaint, from at least November 2011 and continuing through to at least August 2015, Advantage made inaccurate statements through the submissions of its required risk manuals and annual CCO’s report that claimed certain policies and procedures were in place and followed when they were not.
In addition to the fine, the agency required Advantage to improve its policies, and oversight practices to prevent and detect violations of U.S. commodities laws.
Spoofing is a practice in which trader floods the market with fake orders by entering and quickly canceling large buy or sell orders on an exchange, in order to fool other traders into thinking the market is poised to rise or fall. Though the tactic has long been used by some traders, regulators began clamping down on the practice only a few years ago.