CFTC Fines EOX, Futures International, OTC Europe for Capital Deficiencies

The US Commodity Futures Trading Commission (CFTC) has hit three registered introducing brokers with regulatory fines for failing to adhere to certain regulations, including that they failed to meet minimum capital requirements.
The CFTC found that Texas-based EOX Holdings LLC, Futures International LLC of Chicago, and London-headquartered OTC Europe LLP were net-capital deficients, ranging between $9 million and $25 million.

The deficiencies resulted from the IBs’ failure to take required deductions when valuing a certain agreement to guarantee a revolving line of credit for an affiliated company. The CFTC further explains the three IBs guaranteed to compensate for any drawdowns in the credit line. During the period, funds “were drawn on the line of credit on a monthly basis for the benefit of the affiliated company, in amounts ranging from $10 million to $26 million,” the regulator said.
None of the three IBs deducted the amount of the guaranteed drawdown in its calculation of adjusted net capital, which facilitates recovery of customer assets if the broker becomes insolvent. As such, they did not fully recognize this shortfall, as well as the fact that it was actually undercapitalized during the relevant time.
OANDA fined for similar reasons
CFTC has issued an order filing and simultaneously settling charges against the three introducing brokers. To resolve the CFTC’s complaint, they each agreed to pay a penalty of $120,000 and, among other things, cease and desist from further violations of its capital requirements.
Last month, the CFTC also fined  $500,000 for similar lapses in net capital requirements. The charges were that  failed to meet the minimum financial requirements for RFEDs and FCMs and violated the equity withdrawal restriction that resulted from making dividend payments on three occasions.
Each of these violations, the order found, was a result of OANDA’s inadequate internal controls and its failure to supervise matters related to handling its business compliance as a CFTC registrant.
Under CFTC regulations, a retail forex firm must at all times maintain adjusted net capital (ANC) of $20 million, or more in certain circumstances. Events triggering a shortfall in these requirements typically require filings within very short time periods.
The watchdog said that in settling the matter, it took into account OANDA’s cooperation in the investigation and the corrective actions the company undertook after its deficiencies were discovered. It also found no indication that OANDA customers suffered losses as a result of the firm’s net capital and equity withdrawal lapses.

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