CFTC Fines FCM for Improper Investment of Segregated Customer Funds | Practical Law

CFTC Fines FCM for Improper Investment of Segregated Customer Funds | Practical Law

The CFTC issued an order instituting and simultaneously settling charges against BNP Paribas Securities Corp., a registered futures commission merchant (FCM), for violating CFTC Regulations 1.25(b)(3)(i)(F) and 1.25(b)(3)(ii)(D), which govern concentration limits applicable to the investment of segregated commodity customer funds.

CFTC Fines FCM for Improper Investment of Segregated Customer Funds

Practical Law Legal Update w-000-7050 (Approx. 3 pages)

CFTC Fines FCM for Improper Investment of Segregated Customer Funds

by Practical Law Finance
Published on 22 Oct 2015 • USA (National/Federal)
The CFTC issued an order instituting and simultaneously settling charges against BNP Paribas Securities Corp., a registered futures commission merchant (FCM), for violating CFTC Regulations 1.25(b)(3)(i)(F) and 1.25(b)(3)(ii)(D), which govern concentration limits applicable to the investment of segregated commodity customer funds.
On October 20, 2015, the CFTC issued an order instituting and simultaneously settling charges against BNP Paribas Securities Corp. (BNP), a registered futures commission merchant (FCM), for violating CFTC Regulations 1.25(b)(3)(i)(F) (17 C.F.R. 1.25(b)(3)(i)(F)) and 1.25(b)(3)(ii)(D) (17 C.F.R. 1.25(b)(3)(ii)(D)), which govern concentration limits applicable to the investment of segregated commodity customer funds. Customer funds are funds posted as margin to collateralize futures contracts.
FCMs are required to segregate customer funds from funds belonging to the FCM, and can only invest customer funds in investments enumerated in CFTC Regulation 1.25 (17 C.F.R. 1.25) (see Legal Update, Final Rules on Investment of Customer Funds under Dodd-Frank Issued by CFTC).
According to the order, on three occasions in or about November and December 2014, BNP violated CFTC Regulations 1.25(b)(3)(i)(F) and 1.25(b)(3)(ii)(D). BNP reported two of the violations to the CFTC, and an additional violation was discovered in connection with a review by BNP’s designated self-regulatory organization, CME Group, Inc. Although none of these violations resulted in customer losses, the order found that:
  • On November 20, 2014 and November 28, 2014, BNP invested more than 10% of segregated customer funds in an individual money market mutual fund, in violation of CFTC Regulation 1.25(b)(3)(ii)(D).
  • On November 20, 2014 and December 5, 2014, BNP invested more than 50% of segregated customer funds in money market mutual funds generally, in violation of CFTC Regulation 1.25(b)(3)(ii)(D).
The CFTC order requires BNP to:
  • Pay a $140,000 civil monetary penalty.
  • Cease and desist from violating the regulations.
  • Regularly review its policies and procedures and provide training to ensure compliance with the applicable CFTC regulations.