On September 17, 2015, the Commodity Futures Trading Commission (CFTC) issued an order filing and simultaneously settling charges against Australia and New Zealand Banking Group Ltd. (ANZ), an Australia-based firm that’s provisionally registered as a swap dealer, for failing to submit accurate large trader reports (LTRs) for physical commodity swap positions. According to the order, ANZ violated Section 42(f) of the Commodity Exchange Act and CFTC Regulations 20.4 and 20.7.
The order finds that during the period from at least March 1, 2013, through November 30, 2014, ANZ routinely filed LTRs with errors or omissions. Specifically, the order finds that: (1) prior to September 2013, ANZ did not identify the underlying commodities in their LTRs; (2) ANZ populated the field for “Commodity Reference Price” in a format other than the one provided by the CFTC’s Guidebook for Part 20 Reports; (3) in some cases, ANZ reported non-zero positions with a value of zero; (4) ANZ reported its positions in units of the underlying commodity rather than in futures contract equivalent position (for example, in bushels of corn, rather than in the equivalent futures contracts, where each contract represents 5,000 bushels of corn); and (5) ANZ submitted LTRs misidentifying counterparty positions as its own positions. Furthermore, the order finds that ANZ failed to submit reports on a number of days in 2013. Due to these errors and omissions, the CFTC fined ANZ $150,000.
What’s Next for Market Participants?
CFTC regulations have long required futures commission merchants (FCMs), clearing members and foreign brokers to submit reports to the CFTC on a daily basis for every “special account” it carries. Special accounts are commodity futures or options accounts in which there are “reportable positions” in open contracts. A reportable position is an account with open contract positions, at the close of the market on any business day, that are greater than or equal to the CFTC’s reporting level for the underlying commodity (for example, 200 natural gas contracts). The CFTC uses LTRs to assess traders’ activities and potential market power, enforce speculative position limits, monitor for disruptions to market integrity, and promote market transparency by publishing weekly statistics. In 2011, the CFTC added swap dealers to the list of reporting entities and expanded the large trader reporting rules to include physical commodity paired swaps and swaptions. The order is the CFTC’s first case enforcing the new large trader requirements for physical commodity swap positions. The order also demonstrates the CFTC’s increased focus on its large trader reporting program and market surveillance. Reporting entities should revisit their reporting policies and procedures, and ensure that their LTRs do not contain errors or omissions. Other market participants may need to file an increased number of Form 40s to satisfy special call requests by the CFTC.
OCR Rule Compliance
Market participants should also note that the order coincides with the upcoming expiration on September 30, 2015, of no-action relief that the CFTC had previously granted in respect of certain aspects of its Ownership and Control Reporting (OCR) rules. The CFTC revised the OCR rules in 2013 to enhance its market surveillance activities. The revised OCR rules expand the forms that reporting entities must file and require additional account ownership and control information from large traders. More information is available in our Swaps End-User Update regarding the OCR rules. Market participants should confirm with their FCMs and swap dealers that they have properly submitted their ownership and control information before the September 30, 2015, deadline. The ANZ order may be a sign of things to come for reporting entities and other large traders.