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February 19, 2013

CFTC Sanctions London-Based FCM for Capital Deficiencies

By Lene Powell, J.D.

The CFTC settled charges against Enskilda Futures Limited (EFL), a London-based Futures Commission Merchant (FCM), for failing to meet minimum capital requirements as required by Section 4f(b) of the Commodity Exchange Act (CEA) and CFTC Regulation 1.17. The CFTC required EFL to pay a $125,000 civil monetary penalty and to maintain remedial measures it adopted following discovery of the error (In the Matter of Enskilda Futures Limited, February 19, 2013).

According to the order, an error in EFL's margining procedure resulted in a failure to meet the minimum capital requirements on 11 days in 2011. This was due to EFL's failure to collect sufficient margin collateral on an intra-month basis from its ultimate parent, Skandinaviska Enskilda Banken, AB (SEB), which holds an omnibus account at EFL.

Specifically, the order found that during the period of July 14 to August 2, 2011, EFL collected only net margin collateral from SEB on an intra-month basis — not gross margin collateral as required. There was no effect on EFL's monthly capital because EFL and SEB settled up at month-end and EFL called for gross margin. However, because EFL failed to collect adequate margin collateral on an intra-month basis, EFL incurred charges to its adjusted net capital. Due to these charges, EFL failed to meet the minimum capital requirements.

The error was discovered during a routine risk-based audit conducted by CME Group, Inc. on or about November 8, 2011. The next day, EFL filed notice with the CFTC, the National Futures Association, and the CME, advising of its failure to meet the net capital requirements during the relevant period. EFL immediately undertook measures to revise its policies and procedures and collect adequate margin collateral from its customer. Further, it appeared that during the relevant period, SEB had ample funds to satisfy any intra-month collateral call from EFL; the FCM need only have collected the funds, the order found.

EFL entered into the settlement order without admitting or denying the findings or conclusions. The order noted that EFL cooperated fully with CME and Commission staff.

The case is No. 13-17.

LitigationEnforcement: CommodityFutures Enforcement

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