CFTC Fines Bank for Failure to Comply with Large-trader Reporting Requirements | Practical Law

CFTC Fines Bank for Failure to Comply with Large-trader Reporting Requirements | Practical Law

The CFTC issued an order against Australia and New Zealand Banking Group Ltd. for failure to comply with its obligation to submit accurate large-trader reports (LTRs) for swap positions held with respect to physical commodities.

CFTC Fines Bank for Failure to Comply with Large-trader Reporting Requirements

Practical Law Legal Update w-000-6087 (Approx. 3 pages)

CFTC Fines Bank for Failure to Comply with Large-trader Reporting Requirements

by Practical Law Finance
Published on 22 Sep 2015 • USA (National/Federal)
The CFTC issued an order against Australia and New Zealand Banking Group Ltd. for failure to comply with its obligation to submit accurate large-trader reports (LTRs) for swap positions held with respect to physical commodities.
On September 17, 2015, the CFTC issued an order against Australia and New Zealand Banking Group Ltd. (the bank) for failure to comply with its obligation to submit accurate large-trader reports (LTRs) for swap positions held with respect to physical commodities (See, Practice Note, US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules: Large-trader Position Data Reporting for Physical Commodity Swaps). The CFTC uses these reports to survey the physical commodity futures market within the US.
Section 4s(f) (7 U.S.C. § 6s(f)) of the Commodity Exchange Act (CEA), requires swap dealers (SDs) and major swap participants (MSPs) to file LTRs as the CFTC deems necessary. CFTC Regulation 20.4(c) (17 C.F.R. 20.4(c)) enumerates the specific data elements required in LTRs, which include, among others:
  • The commodity underlying the positions.
  • Its reference price.
  • Long and short paired swap positions.
Furthermore, Regulation 20.7 (17 C.F.R. 20.7) stipulates that, absent permission by the CFTC, an organization must submit its data using procedures established and approved by the CFTC. These procedures are currently compiled in the CFTC’s Part 20 Guidebook.
The order found that during a period from at least March 1, 2013 through November 30, 2014 (the relevant period), the bank violated both CEA Section 4s(f) as well as CFTC Regulations 20.4 and 20.7. The CFTC ordered the bank to pay a fine of $150,000 and to cease and desist all further violations.
The bank registered with the CFTC as a swap dealer on January 2, 2013 and was therefore required to submit LTRs during the relevant period. The CFTC found that the bank’s LTRs often omitted specific data requirements or were submitted in an incorrect format. Specifically, the CFTC found that the bank:
  • Did not identify the underlying commodities in its LTRs prior to September 2013.
  • Populated the “Commodity Reference Price” field in a format different than provided for in the Part 20 Guidebook.
  • Reported certain non-zero positions with a value of zero.
  • Reported its position in units of the underlying commodity, not the future contracts equivalent, as is required.
  • Submitted LTRs that misidentified counterparty positions as its own (as principal).