Asset Manager Hedging Results Fined for Failing to Register as a Commodity Trading Advisor
On January 16, 2015, the Commodity Futures Trading Commission (CFTC) fined an asset manager, using financial instruments to hedge its clients’ risk, for failing to register as a Commodity Trading Advisor (CTA). See Summit Energy Services Inc., CFTC Docket No. 15-12. Without admitting or denying any finding or conclusions, the asset manager agreed to pay $140,000 and register as a CTA.
The asset manager assisted commercial clients in purchasing the physical natural gas and electricity needed for their commercial needs. As part of that assistance, the asset manager provided hedging strategies and specifically the value of or the advisability of trading in natural gas OTC swaps and futures for hedging purposes.
The Commodity Exchange Act (CEA) defines a CTA as any person (individuals, partnerships, corporations or trusts) who, for compensation or profit, engages in the business of advising others, either directly or through publications, writings or electronic media, as to the advisability of trading in, inter alia, futures or swaps. Section 4m(l) of the CEA requires a person acting as a CTA and using the mail or other means of instrumentality of interstate commerce in connection with the person’s business as such a CTA to register with the CFTC unless such person provides such commodity trading advice to fewer than 15 persons in the preceding 12 months and does not hold themselves out generally to the public as a CTA.
The asset manager ran afoul of these requirements when it held itself out as offering risk management services including commodity trading advice concerning natural gas futures and OTC swaps in its website and in its sales brochures and then providing such services to more than 15 clients.
Contact Steve Quinlivan for more information.