Copersucar Trading A.V.V., an Aruban corporation that engages in the import and export of sugar and related hedging activities, consented to a fine of US $300,000 to resolve allegations by the Commodity Futures Trading Commission that it engaged in prohibited wash sales on “multiple occasions” from April 2013 through September 2014. According to the CFTC, these transactions allegedly involved Sugar No. 11 futures contracts traded on ICE Futures U.S. The CFTC claimed that Copersucar engaged in these prohibited transactions to transfer positions between various accounts owned by the firm to satisfy its month-end “book squaring” needs. Ordinarily the firm would effectuate its transfers through back office transactions as permitted by exchange rules, said the CFTC. However, when the firm was prohibited from making such transfers by IFUS rules – on or after first notice date – it would effectuate the transfers by placing orders for equal and opposite positions “in a riskless fashion” in the marketplace, noted the Commission.
Compliance Weeds: On IFUS, traders may transfer positions between accounts where no change in beneficial ownership is involved and under certain other limited circumstances. However, transfer trades that offset positions in the spot month may not occur on or after the first notice day of the delivery month. Potentially offsetting long and short positions held by the same beneficial owner on or after the first notice day may only be closed out by transactions executed in the market; privately negotiated transactions such as an exchange for related position; or satisfied through the normal delivery process. However, positions may be transferred during this prohibited time period for offset if the trade date of the transferred position is the same as the transfer date. Transfers of futures, when authorized, may be done at the original market price, prior day’s settlement price or current day’s settlement price. Options may be transferred at original market premium or a premium of zero. (Click here to access IFUS Rule 4.37.) Wash trades on IFUS occur “when there is an act of entering into, or purporting to enter into, transactions with no intent to obtain a bona fide market position or activity that gives the false appearance of an executed transaction(s), but does not subject the Principal to any market risk or change in position or aid in price discovery.” On IFUS, anyone who initiates, places, accepts or accommodates a transaction that he/she “knew or should have known” would result in a wash trade potentially violates the exchange’s prohibition against wash trades. This could include brokers that accept and execute a wash trade for a customer. (Click here for back in IFUS Wash Trade FAQ – February 2016.)