The National Futures Association settled charges brought in June 2014 against The Barbashop LLC (TBL), a commodity trading advisor, for materially misreporting and overstating assets under management, and against TBL and Ronald Barba, the sole owner and president of TBL, for failing to supervise TBL’s activities. NFA also settled charges against TBL for not maintaining required records of bunched orders, not having adequate bunched orders office procedures, and not adequately reviewing TBL’s bunched orders procedures and customer accounts on a quarterly basis, as mandated by NFA requirements. TBL and Mr. Barba resolved this matter by paying a total fine of US $50,000 (for which they are jointly responsible), and agreeing to certain registration restrictions going forward: within 30 days, TBL, Mr. Barba or both will register as a commodity pool operator; while an NFA member, TBL will only operate as a CPO, futures commission merchant or introducing broker (but not a CTA); and while an NFA associate, Mr. Barba will only act as an associated person and/or principal of TBL, or another CPO, IB or FCM (but not a CTA). In addition, TBL and Mr. Barba agreed to other sanctions, including that neither will engage in post-execution allocations while operating as a CPO.
Compliance Weeds: Ordinarily, when placing orders on behalf of multiple accounts, account managers must provide a futures commission merchant with information at or before the time an order is placed, which identifies the number of contracts to be allocated to each account. However, certain eligible account managers, including registered commodity trading advisors, futures commission merchants and introducing brokers may place bunched orders for multiple accounts and allocate filled orders to individual accounts after execution, as long as prior to the end of the trading day. However, all trades must be allocated in a fair and equitable manner “so that no account or group of accounts consistently receives favorable or unfavorable treatment over time.” Allocation procedures must be capable “to permit independent verification of the fairness of allocations over time,” and an account manager must analyze each of its trading programs at least once a quarter to ensure that its allocation method was fair and equitable. Other conditions also apply. FCMs executing or clearing customer accounts for account managers who engage in post-trade allocations must monitor for “unusual allocation activity.” If an FCM has actual or constructive knowledge that allocation activity is fraudulent, it “must take appropriate activity.” NFA recognizes, however, that an FCM’s ability to monitor trading is a function of the amount of information it has. For example, an FCM that executes and clears for a customer will have more information than an FCM that either executes or clears. FCMs also have certain recordkeeping obligations in connection with post-execution allocation accounts. (Click here for additional details in NFA’s Interpretive Notice 9029 (2014): The Allocation of Bunched Orders for Multiple Accounts.)