FCStone Ordered to Pay Civil Monetary Penalty by CFTC

FCStone found itself on the hook for a $140,000 civil monetary penalty for failing to provide an adequate program of

The U.S. Commodity Futures Trading Commission (CFTC) has entered an Order filing as well as settling charges against FCStone, LLC, according to a CFTC statement.

FCStone, LLC is a CFTC-registered Futures Commission Merchant (FCM) whose base of operations is in New York. The order called for FCStone to pay a civil monetary penalty of 140,000 for failing to provide and maintain an adequate program of supervision as well as failing to diligently supervise its employees on one occasion in violation of CFTC Regulation 166.3.

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In particular, the CFTC order finds that, between a period from 2008 until May 2013, FCStone did not administer adequate policies and procedures dictating the transfer of positions between customers’ accounts. In addition, the order found that FCStone adhered to no set written policy governing a request by a customer to transfer positions between accounts.

Rather than rely on more concrete measures, FCStone relied on an unwritten policy for its employees, who understood that they were to seek guidance if a transfer was requested between two accounts that were not under common control.

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Under CFTC regulation, an FCM, such as FCStone, may transfer positions among customers’ commodity accounts held at the firm:

  • As long as the transfer merely constitutes a change from one account to another account
  • The underlying beneficial ownership in the two accounts remains the same, according to the Order

The CFTC Order also found that on one occasion FCStone’s employees transferred positions between two accounts that did not yield the same underlying beneficial ownership.

Specifically, this resulted in the transfer of approximately $20 million in gold and silver positions from an individual’s personal account to a corporate account (the individual was a 98.95% owner).

As a result of the transgression, FCStone cooperated fully with the CFTC’s investigation into the matter and that FCStone, on its own accord, revised its written procedures concerning the transfer of positions accordingly.

Earlier this week, INTL FCStone Markets, LLC, a subsidiary of INTL FCStone Inc. (Nasdaq:INTL), launched a new capability for trading Over the Counter (OTC) foreign exchange (FX) products to select users of CQG.

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