September 28, 2016

CFTC Orders SG Americas Securities, LLC to Pay a $750,000 Civil Monetary Penalty for its Participation in Wash Transactions and Related Supervision Failures

CFTC Finds that the Firm Lacked Adequate Controls and Procedures to Detect and Prevent the Execution of Unlawful Wash Exchange of Futures for Physical Transactions

SG Americas Securities, LLC is the successor to Newedge USA, LLC

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against SG Americas Securities, LLC, as successor to Newedge USA, LLC (Newedge), a financial services firm registered with the CFTC as a Futures Commission Merchant for participating in unlawful wash trades and for failing to diligently supervise over a three and a half year period. The CFTC Order requires SG Americas Securities, as successor to Newedge, to pay a $750,000 civil monetary penalty and comply with an undertaking to improve its internal controls and procedures in order to detect and prevent the execution, clearing and reporting to an exchange of non-bona fide exchange of futures for physical transactions (EFPs).

The CFTC Order finds that Newedge executed and confirmed the execution of, and reported to the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT), numerous EFPs in agricultural and soft commodities, throughout the period from June 2010 through at least January 2014, for and on behalf of its clients that are, are of the character of, or are commonly known as wash sales. Such transactions are expressly prohibited in Section 4c(a) of the Commodity Exchange Act (CEA).

According to the CFTC Order, the EFP trades that Newedge executed and confirmed 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. The Order further finds that 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. Accordingly, the transactions constituted illegal “wash sales” within the meaning of Section 4c(a) of the CEA. Moreover, the Order states that 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 CEA. 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 CFTC Regulation 1.38(a), the Order finds.

The Order also finds that during the relevant period, Newedge failed to supervise diligently its employees’ handling of the transactions at issue and lacked adequate policies and procedures designed to detect and deter the execution of wash EFP trades, in violation of CFTC Regulation 166.3.

The CFTC Division of Enforcement staff members responsible for this matter are Carlin Metzger, Joseph Patrick, Robert Howell, Scott Williamson, and Rosemary Hollinger, with assistance from Division of Market Oversight staff David Amato, Eugene Kunda, and Jerry Lavin.

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Last Updated: September 28, 2016