CFTC Orders Australian Swap Dealer to Pay $500,000 for Supervision Failures

The Commodity Futures Trading Commission (CFTC) has issued an order against the Australia and New Zealand Banking Group Ltd. (ANZ), a financial services firm provisionally registered as a swap dealer, for its failure to fulfill its supervision obligations. The charges stem from ANZ's inadequacies in ensuring the effectiveness of its spoofing surveillance tool. The company has admitted to the facts presented in the order.

The CFTC's order mandates ANZ to pay a civil monetary penalty of $500,000 and to cease any activities that violate the Commodity Exchange Act and CFTC regulations, as specified in the charges.

The investigation revealed that ANZ's surveillance tool, employed to monitor spoofing activity by its traders, was not functioning effectively during two significant periods. Firstly, from November 2019 to June 2020 (First Gap Period), and then again from November 2020 to February 2021 (Second Gap Period), the tool failed to appropriately surveil futures data supplied by a particular vendor. This failure occurred due to a mismatch in the timing of data ingestion into the tool and its subsequent operation.

During these Gap Periods, the surveillance tool was routinely executed before the relevant data was integrated, resulting in the tool's failure to monitor any futures data from the concerned vendor. Despite discovering the issue during the First Gap Period and resetting the timing, ANZ did not implement additional measures to prevent its recurrence. Consequently, the Second Gap Period persisted for approximately four additional months before being identified by ANZ.

As a consequence of these supervision lapses, numerous orders were not subjected to timely surveillance for spoofing activities, and ANZ missed receiving a substantial number of surveillance alerts that would have been generated during these Gap Periods.

However, the CFTC acknowledged ANZ's cooperation during the investigation and its efforts toward remediation. ANZ promptly disclosed both Gap Periods to the CFTC, corrected the timing mismatch upon discovery, and implemented additional safeguards to prevent future occurrences. This cooperation and remediation efforts were considered in reducing the penalty imposed by the CFTC.

This recent order by the CFTC underscores the importance of robust supervision and surveillance mechanisms within financial institutions to ensure market integrity and prevent malpractices such as spoofing. ANZ's case serves as a reminder to all entities operating within the financial sector of the criticality of compliance with regulatory obligations to maintain the integrity and fairness of financial markets.

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