R.J. O’Brien & Associates Fined $750,000 in Two Settlements with US Regulators

R.J. O’Brien & Associates LLC, the oldest and largest independent futures brokerage and clearing firm in the United States, will pay $750,000 in two separate settlements with the and NFA over claims of inadequate supervision and violating prior regulator orders related to a client’s trade allocation scheme.

According to the CFTC, between 2013 and 2014, a client of executed bunched orders on behalf of its customer and proprietary accounts but took improper advantage of post-execution allocation.

Specifically, the unnamed client, who was registered as a Commodity Pool Operator and Commodity Trading Adviser, allocated profitable trades to accounts where he had a proprietary interest, and less profitable trades to customer or pool accounts. The alleged misconduct violates the regulator’s rules requiring such allocations to be “fair and equitable,” with no accounts receiving consistently favorable or unfavorable treatment.

Red flags and previous ban orders

As a registered trader, the unnamed client was allowed to bunch and allocate trades on behalf of multiple customers, but profits or losses must be distributed fairly. , which was registered as a futures commission merchant during the period at issue, was supposed to monitor trades for unusual allocation activity, but it didn’t, the CFTC found.

Despite various red flags, RJO’s employees allowed the client’s activities to continue. Even after the issued two orders that banned the client from soliciting funds and ultimately banned him from trading altogether, the client continued the unfair allocation scheme from an account in the name of his spouse.

The CFTC alleged that RJO was at fault for failing to conduct proper training for its employees and implement policies for the post-execution allocation of bunched orders.

“RJO’s failure to identify the relationship between the Client and the Spouse Account demonstrated the insufficiency of RJO’s policies and procedures regarding the opening of new accounts and compliance with regulatory actions,” explains the watchdog.