April 30, 2018

CFTC Orders Glencore Agriculture B.V. and Glencore Ltd. to Pay a $2 Million Penalty for Exceeding Cotton Futures Position Limits, Transacting Illegal EFPs, and Submitting Inaccurate Form 304s

Cotton Trading by Glencore Agriculture B.V. and Glencore Ltd. Was under Common Control by Head of Glencore Cotton Trading

Washington, DC – The Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against Glencore Agriculture B.V., f/k/a Glencore Grain B.V. (Glencore B.V.), located in Rotterdam, the Netherlands, and Glencore Ltd., located in Stamford, Connecticut, finding that on multiple trading days during May 2013, June 2013, May 2014, and June 2014, Glencore B.V. and Glencore Ltd. held net positions in the ICE Futures Cotton No. 2 contracts (cotton futures) that, on an aggregated basis, exceeded the speculative position limits established by the CFTC.  In addition, the CFTC Order finds that on twenty-four occasions between January 2013 and November 2015, Glencore B.V. and Glencore Ltd. executed exchange of futures for physical transactions (EFPs) opposite each other’s cotton futures trading accounts, even though their accounts were not independently controlled as required for such transactions not to constitute illegal wash trades.  And, on at least two occasions in 2013 and 2014, Glencore B.V. submitted to the CFTC a Form 304 that failed to represent accurately all required information, including its short cash sales commitments, according to the CFTC Order.

The CFTC Order requires Glencore B.V. and Glencore Ltd., jointly and severally, to pay a $2 million civil monetary penalty and to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC Regulations, as charged.

According to the CFTC Order, at all times relevant to the Order, Glencore centralized the management of its global cotton business under the direction of a single trading manager (referred to in the Order as Head of Cotton), who oversaw cotton operations across all Glencore entities.  The Head of Cotton directly supervised cotton traders at Glencore B.V. and was also the direct supervisor of Glencore Ltd.’s head cotton trader. 

The CEA and CFTC Regulations set limits on the net long or net short position that any person may hold or control for certain commodities, including a limit of 5,000 cotton futures for a single month, other than the spot month, exclusive of bona fide hedging transactions.  The CFTC Order finds that because Glencore B.V. and Glencore Ltd. operated their cotton trading under the common control of Glencore’s Head of Cotton, their cotton futures positions should have been aggregated for purposes of complying with the Commission’s position limits.  When aggregated, the cotton futures positions of Glencore B.V. and Glencore Ltd. exceeded 5,000 net contracts, exclusive of bona fide hedging transactions, on multiple days during May 2013, June 2013, May 2014, and June 2014.

The CEA and CFTC Regulations permit noncompetitive trading, such as EFPs, only if such transactions are conducted in accordance with rules of an exchange, such as the Intercontinental Exchange (ICE), that are approved by the CFTC.  At all times relevant to this Order, ICE rules permitted the transaction of EFPs between independently controlled accounts. However, the CFTC Order finds that Glencore B.V.’s and Glencore Ltd.’s cotton futures trading accounts were both ultimately controlled by Glencore’s Head of Cotton.  As a result they were not independently controlled.  Nevertheless, between January 2013 and November 2015, Glencore B.V. and Glencore Ltd. executed twenty-four EFPs opposite one another’s accounts, according to the CFTC Order.

The Order further states that CFTC Regulations require cotton merchants and dealers holding or controlling reportable futures positions to file a monthly Statement of Cash Positions in Cotton (Form 304), as of the close of business on the last Friday of the month.  On the Form 304, entities report the composition of their fixed price cash position in cotton and cotton products, including the quantity of open fixed price purchase and fixed price sale commitments.  The CFTC Order finds that Glencore B.V. filed two erroneous Form 304 reports with the CFTC—one on May 31, 2013 and a second on May 30, 2014—that overstated the quantities of its fixed price cotton cash positions.

The CFTC thanks and acknowledges the Dutch Authority for the Financial Markets for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this action are James Deacon, Ilana Waxman, Laura Brookover, Kara Mucha, John Buffington, James H. Holl, III, and Rick Glaser.  The Division of Enforcement would like to recognize the assistance of other CFTC staff: Janet Briner, Kelly Beck, Harry Hild, and Matthew Hunter.