Glencore Agriculture, located in Rotterdam, the Netherlands, and Glencore Ltd of Stamford, Connecticut are to pay a USD2 million CFTC penalty for exceeding cotton futures position limits.
A CFTC Order finds that on multiple trading days during May 2013, June 2013, May 2014, and June 2014, Glencore BV and Glencore Ltd held net positions in the ICE Futures Cotton No2 contracts (cotton futures) that, on an aggregated basis, exceeded the speculative position limits established by the CFTC.
In addition, the CFTC Order finds that on twenty-four occasions between January 2013 and November 2015, Glencore BV and Glencore Ltd. executed exchange of futures for physical transactions (EFPs) opposite each other’s cotton futures trading accounts, even though their accounts were not independently controlled as required for such transactions not to constitute illegal wash trades. And, on at least two occasions in 2013 and 2014, Glencore BV submitted to the CFTC a Form 304 that failed to represent accurately all required information, including its short cash sales commitments, according to the CFTC Order.
As well as the monetary penalty, the CFTC Order requires Glencore BV and Glencore Ltd to cease and desist from further violations of the Commodity Exchange Act (CEA) and CFTC Regulations, as charged.
According to the CFTC Order, at all times relevant to the Order, Glencore centralised the management of its global cotton business under the direction of a single trading manager (referred to in the Order as Head of Cotton), who oversaw cotton operations across all Glencore entities. The Head of Cotton directly supervised cotton traders at Glencore BV and was also the direct supervisor of Glencore Ltd’s head cotton trader.
The CEA and CFTC Regulations set limits on the net long or net short position that any person may hold or control for certain commodities, including a limit of 5,000 cotton futures for a single month, other than the spot month, exclusive of bona fide hedging transactions. The CFTC Order finds that because Glencore BV and Glencore Ltd. operated their cotton trading under the common control of Glencore’s Head of Cotton, their cotton futures positions should have been aggregated for purposes of complying with the Commission’s position limits. When aggregated, the cotton futures positions of Glencore BV and Glencore Ltd. exceeded 5,000 net contracts, exclusive of bona fide hedging transactions, on multiple days during May 2013, June 2013, May 2014, and June 2014.
The CEA and CFTC Regulations permit non-competitive trading, such as EFPs, only if such transactions are conducted in accordance with rules of an exchange, such as the Intercontinental Exchange (ICE), that are approved by the CFTC. At all times relevant to this Order, ICE rules permitted the transaction of EFPs between independently controlled accounts. However, the CFTC Order finds that Glencore BV’s and Glencore Ltd.’s cotton futures trading accounts were both ultimately controlled by Glencore’s Head of Cotton. As a result they were not independently controlled. Nevertheless, between January 2013 and November 2015, Glencore BV and Glencore Ltd. executed twenty-four EFPs opposite one another’s accounts, according to the CFTC Order.
The Order further states that CFTC Regulations require cotton merchants and dealers holding or controlling reportable futures positions to file a monthly Statement of Cash Positions in Cotton (Form 304), as of the close of business on the last Friday of the month. On the Form 304, entities report the composition of their fixed price cash position in cotton and cotton products, including the quantity of open fixed price purchase and fixed price sale commitments. The CFTC Order finds that Glencore BV filed two erroneous Form 304 reports with the CFTC – one on 31 May, 2013 and a second on May 30, 2014 – that overstated the quantities of its fixed price cotton cash positions.
