September 27, 2013

CFTC Orders R.J. O’Brien & Associates LLC to Pay $125,000 for Violation of Customer Protection Regulation

RJO unlawfully commingled secured foreign futures and options customer funds with segregated domestic futures and options customer funds

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against R.J. O’Brien & Associates LLC (RJO), a CFTC-registered Futures Commission Merchant (FCM) based in Chicago, Illinois, for unlawfully commingling secured foreign futures and options customer funds with segregated domestic futures and options customer funds.  The CFTC Order requires RJO to pay a $125,000 civil monetary penalty and orders RJO to cease and desist from further violations of CFTC Regulation 30.7(d).

The Commodity Exchange Act (CEA) and CFTC Regulations contain provisions to protect the funds of customers trading on both U.S. and foreign exchanges.  In relation to customers trading on foreign exchanges, an FCM must account for and maintain money, securities, and property in an amount at least sufficient to cover or satisfy all of its current obligations to foreign futures and options customers in a separate “secured account.” Regulation 30.7(d) prohibits secured customer funds from being commingled and deposited into the same accounts separately held for segregated domestic futures and options customer funds.

On or about February 10, 2012, RJO, as carrying broker and depository for a non-clearing FCM, transferred $1,586,000 from the non-clearing FCM’s secured omnibus customer account (approximately $605,268 of which represented secured foreign futures or foreign options customer funds) and held, commingled, and deposited the secured customer funds in the non-clearing FCM’s segregated omnibus customer account, the Order finds. RJO transferred the funds to reduce a margin deficiency in the non-clearing FCM’s segregated omnibus account, without knowing whether the funds were part of the non-clearing FCM’s secured account requirements. Further, the Order finds that RJO did not make a margin call to the non-clearing FCM and did not notify the non-clearing FCM that it was transferring the funds from the non-clearing FCM’s secured omnibus account.

According to the Order, on Monday, February 13, 2012, the non-clearing FCM discovered that as a result of the transfer, it had insufficient funds in its secured accounts to meet its obligations to its secured customers. The non-clearing FCM had sufficient funds otherwise available in other accounts to satisfy the segregated funds margin call if RJO had not on its own moved funds from the secured omnibus account. The non-clearing FCM contacted RJO to reverse the transfer, which RJO effected that morning. The non-clearing FCM reported to the CFTC on the same morning that it did not have sufficient funds to meet its obligations to its secured customers.

The CFTC Order finds that RJO, acting as a clearing FCM and depository, failed to comply with Regulation 30.7(d), which prohibits secured customer funds from being commingled with segregated customer funds.

CFTC Division of Enforcement staff members responsible for this matter are Patryk J. Chudy, Michael P. Geiser, Trevor Kokal, Lenel Hickson, Jr., Stephen J. Obie, Manal M. Sultan, Richard B. Wagner, and Vincent A. McGonagle.  Kevin Piccoli, Melissa Hendrickson, Robert Laverty, Timothy Wigand, and Frances Gonzales of the CFTC’s Division of Swap Dealer and Intermediary Oversight also assisted in this matter.

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Last Updated: September 27, 2013