ENFORCEMENT—W.D. Tex: Unregistered commodity trading advisor provides trade signals, fined $100,000 - 01 September 2023

The major question for requiring registration is where the line is drawn between CTA and technology provider.

Texas’s Western District Court issued a consent order against a Texas commodity trading advisor firm (CTA) and its individual associated person owner (AP) for providing trade signals and using those signals to automatically trade binary options for customers without first registering with the Commodity Futures Trading Commission. The CFTC issued a permanent injunction plus a $100,000 civil monetary penalty against the defendants. CFTC Commissioner Caroline D. Pham, however, dissented (CFTC v. Cartu, August 29, 2023, Pitman, R.).

The trade signals and Pham’s dissent. From May 1, 2013, to May 1, 2017, the unregistered CTA, through the AP, offered actual and prospective customers the ability to obtain trade signals and automatically trade binary options using the trade signals. Commissioner Pham, in her dissent, accused the CFTC of repeatedly enforcing inapplicable Commodity Exchange Act rules instead of proposing amendments to those rules for public comment. Here, she distinguished actual CTAs who advise on the trade signals and are, therefore, subject to registration, from those technology providers who merely facilitate the flow of information between the signal provider, the trader, and the Exchange. She proclaimed that the CTA and AP in this case were much more likely technology providers who were therefore not subject to registration. Pham emphasized that the CFTC’s continuous incorrect labeling of technology providers as CTAs causes major disruptions to the industry and markets.

The case is No. 1:20-CV-908-RP.

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