## Facts

- INTL FCStone Markets, L.L.C. (IFCS) was a provisionally registered swap dealer operating an energy-focused Kansas City Energy Group (KCEG).
- KCEG used limited purpose traders (LPTs), including an associated person, to enter energy swap transactions with customers and to hedge risk through related trading activity.
- KCEG serviced both discretionary customer accounts (trader authorized to act) and non-discretionary accounts (customer approval required).
- From January 2013 through July 21, 2013, an LPT placed a series of unauthorized trades in a non-discretionary customer account.
- The CFTC found IFCS did not adequately monitor LPT trading or enforce firm controls designed to ensure customer authorization and appropriate risk management.
- The CFTC also found IFCS failed to implement existing policies and procedures governing discretionary trading and failed to enforce its policies governing customer transaction mark-ups.
- IFCS cooperated during the investigation and implemented, and continued to implement, internal-control improvements recommended by CFTC staff.
- IFCS submitted an Offer of Settlement, consenting to entry of an administrative order without admitting or denying the findings.

## Issues

1. Whether IFCS, as a registered swap dealer, violated CFTC Regulation 23.602 by failing to diligently supervise KCEG LPTs and their trading activities.
2. Whether failure to implement discretionary-trading controls and failure to enforce customer mark-up policies constituted deficient supervision under Regulation 23.602.
3. What remedial sanctions and compliance undertakings were appropriate in a settled administrative proceeding under CEA §§ 6(c) and 6(d).

## Decision

- The CFTC accepted IFCS’s Offer of Settlement and entered an administrative order.
- The CFTC found IFCS violated CFTC Regulation 23.602 by failing to diligently supervise LPTs in KCEG.
- The CFTC found IFCS failed to implement discretionary-trading policies and failed to enforce mark-up policies, contributing to unauthorized trading and control weaknesses.
- The CFTC ordered IFCS to cease and desist from further violations of Regulation 23.602.
- The CFTC imposed a civil monetary penalty and required undertakings to strengthen supervisory systems and internal controls.

## Legal Principles

- CFTC Regulation 23.602 requires swap dealers to diligently supervise business-related activities of their personnel and agents.
- Written policies are insufficient if not implemented and enforced; deficient implementation and enforcement may constitute a supervisory violation.
- Supervision must include controls reasonably designed to prevent and detect unauthorized trading in non-discretionary accounts and to ensure compliance with pricing/mark-up policies.
- In a settled CFTC administrative disposition, the Commission may impose cease-and-desist relief, monetary penalties, and forward-looking undertakings to remediate supervisory and control failures.

## Conclusion

The CFTC concluded that IFCS’s failures to monitor and control trader conduct, to implement discretionary-trading safeguards, and to enforce mark-up policies violated the swap-dealer diligent supervision rule, warranting cease-and-desist relief, a monetary penalty, and compliance undertakings to improve internal controls.


In re INTL FCStone Markets, L.L.C., CFTC Docket No. 15-27 (C.F.T.C. 2015)