Securities Regulation Daily Wrap Up, COMMODITY FUTURES—FCM’s handling of stop orders did not cause improper liquidation, (Dec 23, 2015)

By John M. Jascob, J.D., LL.M.

A commodity trading advisor failed to establish that a futures commission merchant mishandled stop orders and caused the improper liquidation of the advisor’s position in Nasdaq futures. As the advisor did not show that the respondent either misrepresented its margin policy or executed the liquidation in bad faith, the complaint was dismissed (Windjammer Capital LLC v. Global Futures Exchange & Trading Co., December 23, 2015).

A question of scale. Windjammer Capital LLC claimed that the introducing broker for its account, Global Futures Exchange & Trading Company, improperly adjusted Windjammer's stop orders in November 2013, thus preventing Windjammer from "scaling out" its long position in e-mini Nasdaq futures. According to Windjammer, if it had not been precluded by Global Futures from scaling out, its losses would have been only $31,385, rather than the $61,482 it lost when the entire 90-lot position was liquidated due to Windjammer’s failure to meet margin calls.

Global Futures, in turn, asserted that Windjammer's owner disregarded instructions to reduce his exposure in the face of a declining market by either liquidating positions, placing an appropriate stop, or wiring more funds. Rather, he placed a stop which would have created a $20,000 to $23,000 debit balance, if executed. As a result, the carrying broker was forced to liquidate Windjammer’s position after Windjammer’s account became insufficiently margined to carry the positions overnight.

Failure to establish violations. After reviewing the parties’ submissions, the CFTC judgment officer determined that Windjammer failed to establish any violations proximately causing damages by Global Futures in connection with the disputed liquidation. The record showed that Global Futures had repeatedly explained its margin policy to Windjammer when it liquidated undermargined trades on four occasions before the disputed liquidation.

Moreover, Windjammer failed to show that Global Futures acted in bad faith in connection with the liquidation. Global Futures had offered Windjammer’s owner multiple options to correct the undermargined status of the account, all of which he rejected. Accordingly, Windjammer’s complaint was dismissed.

The proceeding is CFTC Docket No. 14-R1.

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