Wells Fargo Bank NA agreed to pay a fine of US $400,000 to the Commodity Futures Trading Commission to resolve charges that it failed to comply with the CFTC’s requirements that it submit accurate large trader reports to it related to its physical swaps commodity positions. The CFTC claimed that from March 1, 2013, through November 13, 2015, every LTR submitted by Wells contained one or more errors. This is the fourth action the CFTC has now brought alleging violations of a swaps dealer’s obligations to provide it accurate LTR data regarding physical swaps commodity positions. (Click here to access information regarding one recent CFTC enforcement action regarding LTR breakdowns in the article, “International Bank Consents to US $560,000 Sanction by CFTC for Not Accurately Reporting Large Trader Reports for Swaps Positions in Physical Commodities” in the July 20, 2015 edition of Bridging the Week.)
Compliance Weeds: The CFTC maintains an extensive large trader reporting program that must be strictly complied with by reporting entities. For futures and related options, large trader data must be provided to the Commission by futures commission merchants and foreign brokers. Generally, if at the end of a day a reporting firm has a customer with a position at or exceeding the Commission’s reporting level in any single futures or options expiration month, the firm must report all of the customer’s positions in futures and options in that commodity no matter the size positions in the other months. (Click here for current CFTC reporting levels for futures.) Rules related to large trader reports were amended in 2013 and some changes were effective last week for the first time. (Click here for details in the article, “CFTC Again Extends Deadlines for New OCR Compliance; Puts Pressure on FCM Clients Who Will Not Provide Adequate Information Regarding Trading Control” in the April 10, 2016 edition of Bridging the Week”) Similarly, clearing members and swap dealers are required to file daily with the CFTC large trader reports for physical commodity swaps and swaptions when their positions exceed the equivalent of 50 related futures contracts (such swaps and swaptions must relate to certain covered agricultural and exempt futures contracts; click here to access a list of relevant covered contracts). The report must include certain required information in a format mandated by the Commission – including converting swap positions to futures contracts equivalent levels. (Click here to access the helpful CFTC publication “Large Trader Reporting for Physical Commodity Swaps: Division of Market Oversight Guidebook for Part 20 Reports” published June 22, 2015.)
Follow-Up: In August, the CFTC filed charges in a federal court in New York City against Deutsche Bank AG, a registered swap dealer, for its alleged failure to accurately report information regarding its swap transactions, as required by law, from April 16, 2016, through the current time. (Click here for details regarding the CFTC's enforcement action against Deutsche Bank in the article, "Swap Dealer Sued in Federal Court by CFTC for Recidivist Reporting Violations; Acknowledges Bank’s Cooperation" in the August 21, 2016 edition of Bridging the Week.) In conjunction with the CFTC’s enforcement action, the CFTC and Deutsche Bank filed a joint motion seeking the appointment of a monitor to help ensure the bank’s ongoing compliance with its swaps reporting requirements. However, on September 22, the federal court hearing the CFTC's enforcement action unexpectedly declined to automatically approve and enter a proposed consent order appointing a monitor, finding that the "CFTC's application is bereft of any authorities explaining why the proposed Consent Order is 'fair, reasonable, adequate, and in the public interest'." Last week the CFTC submitted a memorandum of points and authorities in support of its motion for entry of the proposed consent order that endavored to address the court's concerns. A hearing on the Commission's application is scheduled for October 6.