The Commodity Futures Trading Commission today announced an order filing and settling charges against Tradition SEF LLC (TSEF), a registered swap execution facility (SEF) based in New York. The order finds TSEF failed to establish and maintain adequate system safeguards and failed to promptly provide records to the Division of Market Oversight (DMO) during a routine systems safeguards examination. The order requires TSEF, among other things, to pay an $875,000 civil monetary penalty and remediate its system safeguards failures.
“Today’s enforcement action represents two firsts for the CFTC—the first action charging a SEF with system safeguards violations and the first charging a registrant for failing to provide records promptly during a DMO examination. Ensuring that SEFs comply with their system safeguards obligations is essential to the safety and reliability of our markets. And effective oversight of those markets requires that DMO not be hindered in its system safeguards examinations by lax production of books and records,” said Ian McGinley, Director of Enforcement.
Case Background
The order finds during the relevant period, TSEF failed to comply with certain aspects of the SEF system safeguards requirements in the Commodity Exchange Act and CFTC regulations. The order finds TSEF did not adequately brief its board of directors on the results of certain business continuity-disaster recovery (BCDR), technical risk, and penetration testing and assessments. Although TSEF management provided some test and assessment results to individual directors, TSEF did not present the full board with results of all required testing and assessments. TSEF also failed to maintain an adequate BCDR program by not conducting regular, periodic testing and review of its BCDR capabilities. TSEF also failed to have an adequate enterprise risk management program consistent with generally accepted standards and practices, as it lacked finalized, written policies that adequately addressed operational and third-party risk or that defined organizational risk tolerance and appetite.
The order further finds despite being granted multiple extensions, TSEF failed to produce certain documents DMO requested promptly during a routine examination. In fact, at the time DMO conducted its interviews, TSEF had still not produced all requested records. Moreover, TSEF did not fully comply with DMO’s request for records until after DMO had completed the examination.
The Division of Enforcement staff responsible for this matter are Karen Kenmotsu, Jonah E. McCarthy, Timothy J. Mulreany, and Paul G. Hayeck; and DOE thanks and acknowledges the assistance of DMO staff Jacob Dull, Kyle Miller, and Rachel Berdansky.
