The main US derivatives regulator has fined Barclays over its record keeping for thousands of energy and metals deals, in the first enforcement action after a sweeping inquiry into the hybrid transactions.

Barclays was ordered to pay a $500,000 penalty for failing to create, maintain and promptly produce confirmations for trades called exchanges for related positions, or EFRPs.


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The Financial Times reported in May 2013 that the Commodity Futures Trading Commission had called on Wall Street banks and other traders to provide evidence that their derivatives transactions known as “exchanges of futures for swaps”, a type of EFRP, were legal.

Under such a transaction, two parties execute an off-exchange swaps transaction, and instantly convert it into a futures contract. At the time, regulators were concerned that traders were structuring these two-step deals to avoid the transparency required by exchange trading.

The CFTC on Thursday said Barclays entered into at least 3,717 metals and energy EFRP trades from at least September 2009 to October 2012. The latter month is when CME Group and Intercontinental Exchange relisted most of their over-the-counter energy swap contracts as futures in response to the Dodd-Frank financial reforms.

But Barclays, one of Wall Street’s biggest commodities dealers, did not maintain and could not produce confirmations for at least 1,358 of the trades, breaking a CFTC rule, the agency said. It took Barclays almost 14 months to find and produce confirmations for the remaining metals and energy trades, the CFTC said. Barclays declined to comment.

At the time of the initial inquiry, large commodities traders expressed worry they would be caught in a dragnet over a manner of trading many had viewed as legitimate. The Barclays trades were entered on ClearPort, CME’s platform for transferring the risk of over-the-counter derivatives to its clearing house. ClearPort was invented in 2002 after the energy trader Enron collapsed and fears of counterparty default spread through power and gas markets.

The record keeping fine for Barclays might bring relief to other traders subject to the CFTC’s earlier inquiry, suggesting the agency views the lack of trade confirmations as a paperwork problem rather than a more extreme violation of trading rules.

After the inquiry began, the CFTC warned CME in August 2013 that its procedures for EFRP transactions were “inadequate and require significant and prompt improvement”. CME and other exchanges now regularly discipline market participants for EFRP infractions.

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