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2016 CFTC LEXIS 38

Commodity Futures Trading Commission

September 28, 2016

CFTC Docket No. 16-33

Opinion

The Commodity Futures Trading Commission ("Commission") has reason to believe that from at least June 2010 through at least January 2014, Newedge USA, LLC, now known as SG Americas Securities, LLC (collectively, "Respondent" or "Newedge"), violated Section 4c(a) of the Commodity Exchange Act ("Act"), 7 U.S.C. § 6c(a) (2012), and Commission Regulations ("Regulations") 1.38 and 166.3, 17 C.F.R. §§ 1.38 and 166.3 (2015). Therefore, the Commission deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted to determine whether Respondent engaged in the violations set forth herein and to determine whether any order should be issued imposing remedial sanctions.

In anticipation of the institution of an administrative proceeding, Respondent has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Without admitting or denying any of the findings or conclusions herein, Respondent consents to the entry of this [*2]  Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the Commodity Exchange Act, Making Findings and Imposing Remedial Sanctions ("Order") and acknowledge service of this Order. 1 

The Commission finds the following:

A. SUMMARY

Throughout the period from June 2010 through at least January 2014 (the "relevant period"), Newedge, a Futures Commission Merchant ("FCM") registered with the Commission, acting through its agents, officers and employees, including certain account representatives,  [*3]  executed and confirmed the execution of, and reported to the Chicago Mercantile Exchange ("CME") and Chicago Board of Trade ("CBOT") numerous exchange of futures for physical transactions ("EFPs") 2 in agricultural and soft commodities for and on behalf of its clients that are, are of the character of, or are commonly known as wash sales. These trades were for the same contract, quantity and same or similar price with the buyer and seller for each EFP under the same common control and ownership. Moreover, the trades were executed under circumstances where certain Newedge account representatives either knew that clients desired to net out futures positions across commonly owned and controlled accounts through the use of EFPs, or else failed to inquire why clients were routinely on both sides of the EFPs.

By this conduct, Newedge executed and confirmed the execution of wash trades in violation of Section 4c(a) of the Act. Moreover, because the EFPs were not done in accordance with the written rules of the CME and CBOT, they were not bona fide EFPs, and, therefore, Newedge caused prices to be reported, registered or recorded that were not true and bona fide prices, also in violation of Section 4c(a) of the Act. Further, by accepting and transmitting EFP orders that were not executed openly and competitively pursuant to exchange rules, but in a manner that avoided market risk and price competition that legitimate, competitive trading entails, Newedge executed noncompetitive trades for customers in violation of Commission Regulation 1.38(a).

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2016 CFTC LEXIS 38 *

In the Matter of: SG Americas Securities, LLC, as successor to Newedge USA, LLC, Respondent.

CORE TERMS

commodity, binder, wash sale, confirm, detect, bona fide, supervisory, entity, price competition, noncompetitive, beneficial, customer, non-bona, agents, violation of section, internal control, diligently, ownership, supervise, quantity, register, violation of a regulation, relevant period, registrant, successor