Monday, September 21, 2015

CFTC Fines Swap Dealer $150,000 in First Penalty for Large Trader Swap Reporting Violations

By Lene Powell, J.D.

The CFTC ordered an Australia-based financial services company to pay a $150,000 penalty for failing to submit accurate large trader reports for physical commodity swap positions in violation of Section 4s(f) of the Commodity Exchange Act (CEA) and CFTC Regulations 20.4 and 20.7. The order represents the CFTC’s first enforcement action of Dodd-Frank Act large trader reporting requirements for physical commodity swap positions (In the Matter of Australia and New Zealand Banking Group Ltd., September 17, 2015).

Large trader reporting. Under CEA Section 4s(f), as added by the Dodd-Frank Act, swap dealers that meet certain requirements must file daily large trader reports for reportable positions in physical commodity swaps (LTRs), which contain data as specified. The LTRs must also meet requirements for reporting and submitting information under CFTC Regulation 20.7.

Australia and New Zealand Banking Group Ltd. (ANZ) is a financial services company based in Australia, and is registered with the CFTC as a swap dealer. Between March 2013 and November 2014, ANZ filed LTRs that routinely contained errors. For example, ANZ often misidentified counterparty positions as its own positions as the principal. The bank also sometimes reported some non-zero positions as zero, did not identify any underlying commodity, and reported its positions in units of the underlying commodity instead of in futures contract equivalents. Due to the errors, ANZ inaccurately reported its positions, in one instance reporting a position more than 5,000 times its actual size. After ANZ responded to a CFTC special call in January 2014, the errors were discovered and ANZ submitted corrected historical LTRs.

$150,000 fine. The CFTC ordered ANZ to pay a $150,000 civil monetary penalty and cease and desist from committing further violations of the CEA and CFTC regulations. In imposing the penalty, the CFTC noted that accurate large trader reporting is essential to the agency’s ability to conduct effective surveillance of markets in U.S. physical commodity futures and economically equivalent swaps.

The case is CFTC Docket No. 15-31

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