Published November 21, 2012
Cantor Fitzgerald will pay a $700,000 fine to settle allegations it allowed a shortfall in client funds just months after the collapse of MF Global left a gaping hole in futures-customers accounts.
The Commodity Futures Trading Commission said on Wednesday that 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.
A spokesperson for Cantor Fitzgerald did not immediately respond to a request for comment.
On each of the three days in January, Cantor employees made required daily computations to determine how much customer money had 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 to $3 million back into the segregated account, according to the CFTC.
Senior managers at the company did not learn of the deficiencies until CME Group discovered them during a routine audit in March. Cantor was supposed to immediately notify CME and the CFTC of the shortfalls when they were detected.
"Key personnel went unaware," CFTC said.
Cantor 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.
Its violations were the latest incidents to rattle confidence in the futures industry after brokerages MF Global and Peregrine Financial Group collapsed.
Futures brokers are required to keep customers' funds in dedicated accounts to protect them from being used for anything other than client business.
However, MF Global failed on Oct. 31, 2011, after allegedly misusing customer funds as it scrambled to meet margin calls to back bets on European debt.
Peregrine Financial failed in July 2012 after its founder tried to commit suicide and confessed to stealing customers' money for nearly 20 years.