The United Kingdom’s Financial Conduct Authority assessed a fine of £15.4 million (approximately US $19.5 million) against Tullett Prebon (Europe) Limited (“TPEL”) for not having systems and controls around a core business within its Rates Division – "name passing' broking" – that enabled brokers to engage in multiple wash sales, and for not being open and cooperative with the FCA as evidenced by not producing until 2014 certain audio tapes requested in August 2011. The relevant business involved TPEL brokers initially arranging trades on behalf of non-disclosed clients and then ultimately disclosing the clients' names to each other so they could execute the transactions directly without TPEL standing in between.
According to FCA, TPEL's name passing' broking business constituted a significant percentage of TPEL's overall business and generated a large part of the firm's overall revenue. The business depended on "strong relationships" between TPEL's brokers and employees of their institutional clients including a large amount of entertainment. TPEL's brokers' compensation was a function of commissions they generated from their clients.
FCA charged that seven TPEL traders orchestrated 17 wash sales for customers between 2008 and 2010 solely to generate commissions. However, claimed FCA, senior management of the company “failed to act with due skill, care and diligence when they were faced with blatant signals of broker misconduct.” For example, when a senior manager inquired into a very high commission generated on a trade, the broker told him, “You don’t want to know.” In response, the senior manager made no efforts to follow up on the broker’s possible misconduct.
Additionally, FCA alleged that the firm’s compliance department conducted “no form of monitoring” regarding the firm’s name passing' broking business as the department regarded the business as low risk. Although TPEL maintained a system to capture information regarding trades, orders and commissions, the compliance department presumed it was being used by trading desk heads and division directors to detect unusual transactions but did not follow up; in fact, said FCA, there was no effective monitoring. FCA also alleged that, in August 2011, when it requested certain audio tapes from TPEL it was told they did not exist. However, some TPEL personnel were aware a majority of such tapes did exist; FCA was not advised of the tapes’ existence and TPEL’s earlier knowledge of their existence until much later and relevant tapes were not produced until 2014.
Last month, Tullett Prebon Americas Inc. ("Tullett"), a Commodity Futures Trading Commission-registered introducing broker, settled two enforcement actions by the CFTC by agreeing to pay a combined fine of US $13 million and implementing various remedial measures. In one action, the CFTC claimed that, from at least October 2, 2012, through at least December 2014, Tullett failed to adequately supervise brokers on its US Dollar Medium-Term Interest Rates Swaps Desk who allegedly made numerous false and misleading statements to customers related to certain executed trades as well as bids and offers. In the other action, the CFTC claimed that during its investigation into Tullett’s conduct, one unnamed broker made false or misleading statements or omitted material information to it during a voluntary appearance before Commission staff. (Click here for details in the article “Interdealer Broker Fined US $13 Million by CFTC for Making False or Misleading Statements to Customers and to CFTC” in the September 15, 2019 edition of Bridging the Week.)
Both TPEL and Tullett are now part of the TP ICAP Group.