Dissenting Statement of Commissioner Caroline D. Pham on Off-Channel Communications Matter

I respectfully dissent on In re Cowen and Co. because the administrative record does not include evidence that any CFTC registered Associated Persons (APs)[1] engaged in activity that was in violation of the CFTC's recordkeeping requirements for introducing brokers (IBs), such as maintaining records of transactions, orders, and other business "relating to dealing in commodity interests," or communications "concerning quotes, solicitations, bids, offers, instructions, trading, and prices that lead to the execution of a transaction in a commodity interest." These are specific types of records. Based on the information in the administrative record, however, the CFTC only reviewed the sample provided by Respondent to the SEC regarding Respondent's FINRA-registered representatives. None of the persons in the SEC sample was a CFTC AP. Consequently, there was no evidence in the administrative record involving CFTC APs and the specific types of records that IBs are required to maintain. I am unable to support an enforcement action that does not have any evidence that the alleged violations actually occurred. Therefore, I must dissent.<_o3a_p>

This case appears to be the CFTC's piggybacking off the SEC's investigation to misuse the power of the U.S. government to obtain a $3 million settlement from Respondent-all without any evidence of a CFTC violation. I believe the CFTC should have conducted its own investigation such as, at the very least, its own sample of Respondent's limited number of CFTC APs to determine whether there was, in fact, any violation of CFTC rules.<_o3a_p>

I note that of the three "off-channel communications" cases brought against IBs, two of those firms have de-registered with the CFTC. I question if this is solely a coincidence. I am concerned that when faced with the choice whether to engage in business activity subject to CFTC oversight, firms would rather not participate in our markets than deal with the CFTC.<_o3a_p>

The CFTC should be promoting greater access to markets-not limiting access. In the last several years, customers and clients now have less choice of market participants to conduct trading because of the de-registration of IBs. Fewer market participants leads to less liquidity and less efficient markets. As the saying goes, "people vote with their feet." The Commission would do well to listen to what the public is saying.<_o3a_p>

[1] CFTC APs of IBs are registered with the National Futures Association (NFA).<_o3a_p>