Washington, D.C. – SG Americas Securities, LLC, formerly Newedge USA, LLC, has agreed to pay $750,000 to settle charges brought by the U.S. Commodity Futures Trading Commission (CFTC) regarding unlawful wash trades and supervisory failures. The CFTC alleges the firm engaged in these practices over a three-and-a-half-year period, from June 2010 through January 2014.
The agency’s order details that Newedge executed and reported numerous Exchange for Physicals (EFPs) in agricultural and soft commodities to the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT). These EFPs were determined to be wash sales – transactions designed to create the illusion of trading activity without changing beneficial ownership – a violation of Section 4c(a) of the Commodity Exchange Act (CEA).
According to the CFTC, the EFP trades involved the same contract, quantity, and similar pricing between buyers and sellers under common control. Newedge account representatives either knew clients intended to offset positions through these EFPs or failed to investigate the practice of clients appearing on both sides of the trades. This constituted illegal “wash sales” and resulted in the reporting of inaccurate prices, further violating Section 4c(a) of the CEA.
The CFTC also found that Newedge violated CFTC Regulation 1.38(a) by executing noncompetitive trades that bypassed market risk and fair price competition. Furthermore, the firm allegedly failed to diligently supervise employees and maintain adequate policies to detect and prevent these wash EFP trades, breaching CFTC Regulation 166.3.
As part of the settlement, SG Americas Securities will improve its internal controls and procedures to identify and prevent similar unlawful transactions in the future. The case was led by CFTC staff members Carlin Metzger, Joseph Patrick, Robert Howell, Scott Williamson, and Rosemary Hollinger, with support from David Amato, Eugene Kunda, and Jerry Lavin from the Division of Market Oversight.
Source: CFTC.gov
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