## Facts

- Absa Bank, Ltd., a South African financial services firm, traded corn and soybean futures on the Chicago Board of Trade (a U.S. designated contract market).
- From June 2009 to August 2011, Absa and FirstRand Bank, Ltd. engaged in multiple prearranged futures transactions in those products.
- Before entering the trades on the exchange, employees of Absa and FirstRand held telephone calls and agreed on the contract, quantity, price, direction, and timing.
- The coordinated structure removed exposure to market risk and displaced competitive price formation on the exchange.
- The CFTC instituted an administrative enforcement proceeding and resolved it through an accepted offer of settlement, with Absa consenting to the order without admitting or denying the findings or conclusions.
- The CFTC noted Absa’s cooperation during the investigation when imposing sanctions.

## Issues

1. Whether Absa’s prearranged corn and soybean futures transactions constituted fictitious sales (including wash or accommodation-type trading) prohibited by § 4c(a)(1) of the Commodity Exchange Act.
2. Whether executing futures transactions after pre-trade coordination of material terms violated the open and competitive execution requirement of CFTC Regulation 1.38(a).
3. Whether asserted linkage to foreign-market activity or practices could excuse noncompetitive execution on a U.S. designated contract market.

## Decision

- The CFTC found Absa violated § 4c(a)(1) of the Commodity Exchange Act and CFTC Regulation 1.38(a) by prearranging noncompetitive CBOT futures trades.
- The CFTC ordered Absa to cease and desist from further violations of § 4c(a)(1) and Regulation 1.38(a).
- The CFTC imposed a $150,000 civil monetary penalty.
- The CFTC required compliance undertakings, including instituting, updating, and/or strengthening policies and procedures designed to detect, deter, discipline, and correct potentially prearranged, fictitious, or noncompetitive trading on U.S. markets.

## Legal Principles

- Futures transactions privately prearranged to negate market risk and price competition can constitute “fictitious sales” prohibited by Commodity Exchange Act § 4c(a)(1).
- Regulation 1.38(a) generally requires futures trades on designated contract markets to be executed openly and competitively, unless conducted pursuant to an exchange rule permitting a specified form of noncompetitive execution.
- Pre-trade coordination of key economic terms (product, price, quantity, direction, and timing) is evidence of noncompetitive execution inconsistent with exchange-based competition.
- Settlement orders may include cease-and-desist relief, civil monetary penalties, and compliance undertakings, and cooperation may be considered in the sanction determination.

## Conclusion

The CFTC concluded that Absa’s coordinated, prearranged CBOT futures trades were fictitious and noncompetitive under the Commodity Exchange Act and CFTC Regulation 1.38(a), and imposed a cease-and-desist order, a $150,000 penalty, and compliance program undertakings to prevent recurrence.


In re Absa Bank, Ltd., CFTC Docket No. 14-30 (C.F.T.C. Sept. 25, 2014)