The Commodity Futures Trading Commission (CFTC) today issued a deposit and settlement order against Australia and New Zealand Banking Group Ltd. (ANZ), a financial services company that has been provisionally registered as an exchange dealer for breaching supervisory obligations for failing to ensure its counterfeit monitoring tool was working effectively.
ANZ admitted the facts of the order.
The order requires ANZ to pay a civil penalty of $500,000 and to cease and desist from violating the Commodity Exchange Act and CFTC regulations as charged.
During a CFTC investigation into ANZ’s trading activity, ANZ disclosed to CFTC staff that a monitoring tool used by ANZ to monitor rigging activity by its traders was not working effectively on futures data provided by a supplier from November 2019 to June 2020 (First Gap Period) and then again from November 2020 to February 2021 (Second Gap Period). For both the first and second time intervals, there was a mismatch between the time the relevant data was entered into the surveillance tool and the time the tool was used.
The surveillance tool addressed, among other things, trading in Eurodollar futures contracts on the Chicago Mercantile Exchange, which ANZ used in part to hedge various swap positions.
In particular, during the two Gap Periods, the tool was run on a daily basis before some data was entered into the tool, and thus the tool failed to track any of the futures data from that vendor.
Furthermore, even after discovering the first interval period and resetting the time so that the tool would run after receiving the relevant data, ANZ did not implement additional safeguards to prevent the timing issue from recurring. In fact, the subject came back. The second gap period was caused by exactly the same problem as the first gap period and lasted about four additional months before ANZ discovered it.
As a result, thousands of orders were not monitored for counterfeiting in time and ANZ should have but did not receive a significant number of surveillance alerts that would have been generated during the two Gap Periods.
In accepting ANZ’s offer, the CFTC acknowledged ANZ’s substantial cooperation with the Enforcement Division’s investigation of this matter. The CFTC also acknowledged ANZ’s representations regarding its rehabilitation in relation to this matter. Specifically, during the course of the investigation, ANZ disclosed both gap periods to the CFTC.
ANZ also said it fixed the timing mismatch as soon as it became aware of it, and after the second gap period, installed additional safeguards to prevent a recurrence. The CFTC’s recognition of ANZ’s substantial cooperation and restitution is further reflected in the form of a reduced penalty.