Braemar Securities, part of London-listed shipbroking group Braemar, has been hit with a fine after violating regulations on communications and disclosures.
The freight derivatives desk has been fined $140,000 by the National Futures Association (NFA), following a complaint issued in August by the US-based regulator’s Business Conduct Committee.
The broker breached compliance rules by neglecting its obligations related to communication record-keeping and by disclosing customers’ confidential and nonpublic information without consent, according to a decision issued on Wednesday by the NFA hearing panel.
The decision also charged Braemar with failing to supervise the conduct of its employees and brokers diligently.
The charges follow an NFA review of Braemar’s forward freight agreement desk activity for the first three months of 2022.
The regulator has accepted a settlement offer from Braemar Securities, which is categorised by the regulator as an introducing broker in FFAs. The firm has neither admitted nor denied the allegations but agreed to pay the fine. TradeWinds has contacted the company for further comment.
‘Who’s bidding these capes?’
Braemar’s written supervisory procedures prevent brokers from discussing the details of communications with any other party, including the counterparty, without explicit permission from the customer when negotiating a block trade.
But it was found that an unnamed Braemar FFA broker broke these rules by disclosing the name of a customer bidding alongside another customer, in response to the question “Who’s bidding these capes?” in February last year.
The NFA review found the same thing happened again less than two weeks later when a Braemar broker disclosed the name of a counterparty selling a contract in an instant message to a customer during both the negotiation and subsequent execution of the trade.
The clients who were named in this way had not authorised Braemar to disclose their identity to other market participants.
When questioned by the NFA, Braemar admitted to breaching the rules and said its FFA desk communications did not fall within the firm’s monitoring system, which meant Braemar was unable to uncover improper disclosures of confidential information.
Braemar’s monitoring system is outsourced to an external compliance consultancy, which up to that point had been reviewing only the regulated activities of the group’s coal desk.
The NFA enquiry found that Braemar’s FFA activities had continued without any compliance supervision since the desk became operational in 2019, after the merger with Atlantic Brokers.
Braemar told the NFA that, after completing the Atlantic Brokers buyout, it was unsure whether the FFA business would fall under the jurisdiction of the NFA or the US-based Commodity Futures Trading Commission, given that the group is headquartered in London and most of its clients are not US-based, trading FFAs for clearing on non-US exchanges.
Derivatives brokers are bound by rules on communications set by the Commodity Futures Trading Commission, a US-based regulator.
Clarksons is regulated by the NFA as an execution-only introducing broker for block trades of FFAs, fuel oil and iron ore derivatives.
An introducing broker that generates more than $5m in aggregate gross revenue over three years must keep records of all business-related and transaction-related communications and retain them for five years.
However, the NFA found that Braemar took no action to confirm or clarify its regulatory responsibilities or introduce any oversight for the desk.
The NFA review found that brokers were using unrecorded personal mobile phones to conduct pre-trade oral communications, breaching regulatory requirements and the firm’s written supervisory procedures.
When the NFA asked about the extent of this practice, Braemar said its FFA desk conducted around 25% of its trading activity on unrecorded personal mobile phones. It said its coal desk, which also falls within the NFA’s oversight, did not operate in this way.
The NFA also found that a Braemar FFA broker was not registered as an associated person of the firm when brokering a trade between two institutional investors, one of which was US-based.
Others fined previously
The last few years have seen other big-name derivatives brokers fall foul of NFA rules on communications and disclosures, including a former chairman of the Baltic Exchange Freight Forward Agreement Brokers’ Association.
In March this year, Florida-based commodities and freight derivatives broker Ocean Solutions was fined $140,000 for similar breaches to those made by Braemar.
James W Ronan, senior vice president of Ocean Solutions, was also ordered to pay a $60,000 fine as an “associated person” of the company.
Ronan was chairman of the Baltic Exchange FFA Brokers’ Association between 2013 and 2014.
The NFA’s hearing panel found that Ocean Solutions disclosed confidential customer information to other customers of the firm.
It also breached compliance rules by failing to keep records of oral and written pre-trade communications and by failing to diligently supervise the firm and its employees, according to the decision document.
It was found that Ocean Solutions and Ronan broke compliance rules by failing to disclose to customers the conflict of interest presented by the firm and Ronan brokering trades on behalf of an affiliate in which the firm and Ronan had a management and/or ownership interest.
Ocean Solutions was also found to have broken an NFA bylaw by failing to register its CEO, Matthew LaFiandra, as an associated person and an NFA associate.
Freight Investor Services, the world’s biggest broker of freight derivatives, was fined $140,000 in 2021 in similar circumstances.
The NFA found the shop failed to keep complete records of transaction-related communications and had allowed an unregistered individual to act as an associated person of the company in trading.
