The Commodity Futures Trading Commission recently accepted an offer of settlement submitted by FirstRand Bank, Ltd. in anticipation of an administrative proceeding resulting from FirstRand’s alleged violations of the Commodity Exchange Act (CEA). According to the CFTC, between June 2009 and August 2011, FirstRand entered into prearranged trades involving corn and soybean futures contracts on the Chicago Board of Trade (CBOT). FirstRand and its trading partner agreed upon the futures contracts they would trade and the direction that each party would take, as well as the quantity, price and timing of each trade. In the settlement offer, FirstRand maintained that the prearranged trades were meant to hedge its position on related futures contracts in the Johannesburg Stock Exchange (JSE). FirstRand asserted that because the JSE permits prearranged trades, the bank mistakenly believed that they were allowed on the CBOT as well. Once FirstRand became aware of concerns regarding the trades, it ceased the practice and cooperated with the CFTC investigation.
Under Sections 4c(a)(1), (2) of the CEA, it is unlawful to offer to enter into a transaction that is a fictitious sale, which includes wash trades, accommodation trades and prearranged trades. These types of trades appear to utilize the open market but actually eliminate market risk and price competition.
Without admitting or denying the CFTC’s findings, FirstRand agreed to settle for a civil penalty of $150,000. In addition, FirstRand agreed to: (i) cease and desist from any ongoing violations; (ii) strengthen its internal policies and provide training on fictitious sales; and (iii) provide periodic compliance reporting to the CFTC for a period of two years.
In the Matter of FirstRand Bank, Ltd., No. 14-23 (CFTC Aug. 27, 2014.