The Commodity Futures Trading Commission filed a civil complaint against Forex Capital Markets, LLC for being undercapitalized by approximately US $175 million on January 15, 2015, and not immediately reporting its alleged regulatory breach to the Commission. The CFTC also claimed that the firm guaranteed customers against losses, also in violation of CFTC rules. Forex Capital Markets’ net capital deficiencies were precipitated by the unexpected decision of the Swiss National Bank to no longer maintain the Swiss franc at a fixed exchange rate with the Euro on January 15, 2015, and the subsequent collapse in value of the Swiss franc. Forex Capital satisfied its capital requirements by obtaining a loan from an undisclosed “large conglomerate holding company” on January 16, said the CFTC.
Compliance Weeds: Both RFEDs and futures commission merchants have numerous ongoing reporting and ad hocnotification requirements to the CFTC and their designated self-regulatory organization. Events triggering notice requirements typically require filings within very short time periods. For example, FCMs are required to provide immediate notice to the CFTC and the firm’s DSRO if they do not meet their minimum capital requirement; when a carried omnibus account must be liquidated or transferred due to its failure to meet a margin call; if an account is under margined by an amount greater than the FCM’s net capital; when customer funds held by the FCM are less than the amounts required to be held; and various other circumstances. Notification requirements for certain other events are on the same day, within 24 hours or within two business days. RFEDs and FCMs must be aware of all events requiring notice filings with the CFTC and their SRO as well as the timing requirement for any necessary follow-up. Although sometimes firms only discover an event requiring an immediate or prompt notice filing after a notice-filing deadline, a bad situation should not be made worse by unnecessarily delaying a required filing following a late discovery. (Click here for a chart of FCM ongoing and notice requirements, and here for a chart of RFED ongoing and notice requirements.)