* CFTC fines Cantor Fitzgerald $700,000
* Co. allowed shortfall in customer accounts -regulators
* Deficit occurred just months after MF Global failed
By Tom Polansek
WASHINGTON, Nov 21 Cantor Fitzgerald
will pay a $700,000 fine to settle allegations it allowed a
shortfall in futures-customer funds just months after the
collapse of MF Global left a gaping hole in customers' accounts,
regulators said on Wednesday.
The Commodity Futures Trading Commission said Cantor
Fitzgerald failed to maintain adequate funds in its customer
segregated account from Jan. 24 to Jan. 26 due to an
"inadvertent transfer" of $3 million from the account, instead
of from Cantor's house account. The firm also failed to notify
regulators of the shortfall as required.
The transfer accounted for more than half of customer assets
in segregation at the end of January, according to CFTC data.
A spokesperson for Cantor Fitzgerald did not immediately
respond to a request for comment.
The violations were the latest incidents to rattle
confidence in the futures industry after futures brokerages MF
Global and Peregrine Financial Group collapsed after misuse of
On each of the three days in January, Cantor Fitzgerald
employees made required daily computations to determine how much
customer money needed to be on deposit to meet segregation
requirements. However, they did not realize the account was
short until Jan. 27, at which point the firm transferred $3
million back into the segregated account, according to the CFTC.
The shortfall occurred while the primary person responsible
for the daily calculations was unexpectedly out of the office,
the CFTC said.
"What's really troubling is they didn't even realize they
breached segregation" right away, said James Koutoulas,
co-founder of the Commodity Customer Coalition, set up in the
aftermath of MF Global's collapse in October 2011 to help
clients regain their money.
"It's just incredible that these big firms don't have these
Under the Commodity Exchange Act, futures brokers are
required to keep customers' funds in dedicated accounts to
protect them from being used for anything other than client
Senior managers at Cantor Fitzgerald did not learn of the
shortfall until exchange-operator CME Group discovered
it during a routine audit in March. Cantor Fitzgerald was
supposed to immediately notify CME and the CFTC of the
deficiencies when they were detected.
CME declined to comment.
Cantor Fitzgerald was the 64th largest futures commission
merchant in terms of segregated customer assets at the end of
September, according to CFTC data. It had about $6.4 million in
customer segregated assets, compared with Goldman Sachs,
which was the largest with about $19.7 billion.
The accidental transfer of money from customer accounts at
Cantor Fitzgerald "should be a grave concern" for its clients,
said John Roe, who co-founded the Commodity Customer Coalition
"If it's that easy to violate the Commodity Exchange Act,
then the regulations are a paper tiger," he said.
MF Global failed after allegedly misusing customer funds as
it scrambled to meet margin calls to back bets on European debt,
leaving customers missing more than $1 billion.
Peregrine Financial failed in July 2012 after its founder
tried to commit suicide and confessed to stealing more than $100
million from customers over nearly 20 years.