MAREX NORTH AMERICA LLC
DISCLOSURE DOCUMENT
AS OF February 28, 2021
TABLE OF CONTENTS
A. COMPANY NAME AND DETAILS
B. NAMES AND BUSINESS BACKGROUND OF LISTED PRINCIPALS
C. BUSINESS ACTIVITIES
D. MATERIAL RISKS
E. NAME OF THE COMPANY’S DESIGNATED SELF-REGULATORY ORGANIZATION
F. LISTING OF ANY MATERIAL ADMINISTRATIVE, CIVIL, ENFORCEMENT, CRIMINAL, OR ENFORCEMENT COMPLAINTS OR ACTIONS
G. OVERVIEW OF CUSTOMER FUND SEGREGATION
H. DISCLOSURE STATEMENT REGARDING SEPARATE ACCOUNTS
I. FILING OF CUSTOMER COMPLAINTS
J. FINANCIAL DATA AS OF January 31, 2021
K. SUMMARY OF RISK PRACTICES, CONTROLS AND PROCEDURES
A. COMPANY NAME AND DETAILS
Marex North America LLC (“MNA” or the “Firm”) was incorporated in Delaware on August 17, 2010. Its principal place of business is located at 360 Madison Avenue, 3rd Floor, New York, New York 10017.
The Firm is a registered Futures Commission Merchant (“FCM”) regulated by the Commodity Futures Trading Commission (“CFTC”) and a member of National Futures Association (“NFA”) effective November 23, 2010.
The Chicago, Illinois office of MNA is located at 222 West Adams Street; Suite 450; Chicago IL 60606.
The Firm’s telephone numbers and facsimile numbers are as follows: • New York Telephone (212) 584-3860 • New York Facsimile (212) 867-7172 • [email protected]
• Chicago Telephone (312) 460-9200 • Chicago Facsimile (312) 795-7999 • [email protected]
B. NAMES AND BUSINESS BACKGROUND OF LISTED PRINCIPALS
The following individuals are listed principals of MNA as of February 28, 2021:
• Ian Theo Lowitt (NFA ID# 400556), Group Chief Executive Officer of Marex Spectron. As Group Chief Executive Officer, Mr. Lowitt leads the development of the Group’s short and long term strategies, creating and implementing the Group’s vision and mission. Prior to joining Marex Spectron, Mr. Lowitt was Chief Operating Officer of Barclays Wealth America having joined in September 2008. Prior to Barclays Wealth, Mr. Lowitt spent 14 years at Lehman. His responsibilities have included Strategy, Finance, Technology and Operations having commenced his career at McKinsey. He graduated from Oxford University in 1990, where he was a Rhodes Scholar. Mr. Lowitt is located at the Marex Spectron Group’s headquarters at 155 Bishopsgate, London, EC2M 3TQ.
• Ram Vittal (NFA ID# 531856), Chief Executive Officer. Mr. Vittal was previously Managing Director and Head of Treasury Services Franchise Client Management at JPMorgan Chase, where he was spearheading innovative client solutions leveraging data analytics and digital technologies. Prior to JPMorgan Chase, he was Managing Director at Goldman Sachs, holding several leadership roles in the Investment Management and Investment Banking divisions. Whilst at Goldman, he led the establishment of Goldman’s asset management business in India. Mr. Vittal holds an MBA from the Wharton School of the University of Pennsylvania and serves as Chairman of the Board of Overseers for Columbia University’s School of Professional Studies. Mr. Vittal is located at 360 Madison Avenue, New York, NY 10017.
• Jason Manumaleuna (NFA ID# 425821), Chief Executive Officer of the RCG Division in Chicago. Mr. Manumaleuna has over 20 years’ experience in the futures industry. He began his career as an auditor at the CME. He left the CME in 1998 to work as the Controller for the LFG Division of Refco, and for Calyon Financial, and later worked in internal audit for MF Global. He moved to R.J. O’Brien in 2008, becoming Chief Financial Officer in 2010. Jason holds a Bachelors degree in Accounting from the University of Illinois at Chicago. Mr. Manumaleuna is located at 222 West Adams Street, Chicago IL 60606.
• Nigel George William Grace (NFA ID# 0521445), became the Chief Financial Officer of Marex Spectron Group in April 2019 and is responsible for manging the finances of the company, including financial planning. Mr. Grace has spent large parts of his career in the commodity trading markets, across metals, agriculture and energy, and joined the Company from Castleton Commodities, where he was Head of Metals Operations. Before Castleton, he was Head of Finance at Armajaro Trading, and prior to that held senior financial roles at JP Morgan and Sempra, amongst others. Mr. Grace is a qualified Chartered Accountant. Mr. Grace is located at 155 Bishopsgate, London, EC2M 3TQ.
• Michael Masterson (NFA ID# 415087), Chief Compliance Officer of MNA. Prior to joining MNA, Mr. Masterson was a Compliance Officer and Deputy Money Laundering Reporting Officer with MF. From 1995 to 2005, he served as the compliance officer of the London office of both Lind- Waldock & Company and Refco Overseas Limited. From 1986 to 1994, Mr. Masterson was employed in the compliance department of the NFA, starting as a staff auditor and serving eventually as the Supervisor of Audits. He was awarded both a Masters in Business Administration with a concentration in Finance and a B.S. in Accounting from DePaul University in Chicago, Illinois. Mr. Masterson is located at 360 Madison Avenue, New York, NY 10017.
• Matthew Thistle (NFA ID# 303373), Head of New York Office. Mr. Thistle joined Marex Spectron in 2011 as the Global Head of Crude Options and eventually was named the Managing Director of North America OTC Energy. He began his career at Nations Bank/Bank of America trading energies on the floor of the New York Mercantile Exchange (“NYMEX”), eventually co-founding his own proprietary trading firm at NYMEX. He graduated cum laude from the University of Harford. Mr. Thistle is located at 360 Madison Avenue, New York, NY 10017.
C. BUSINESS ACTIVITIES
As documented in our Introduction, MNA is a registered FCM which is regulated by the CFTC and a member of NFA. In addition, MNA has clearing memberships on the following Exchanges to clear futures and options on futures:
• CME Group Exchanges (Chicago Mercantile Exchange, Chicago Board of Trade, Commodity Exchange Inc., and New York Mercantile Exchange), effective January 10, 2011; • Minneapolis Grain Exchange, effective February 1, 2019; • ICE Futures U.S., effective December 17, 2010;
• ICE Futures Europe, effective February 1, 2019; • Dubai Mercantile Exchange, effective April 25, 2012; and • Non-Clearing Member of Eurex Deutschland, effective October 30, 2017;
MNA is an approved Foreign Participant of the Montreal Exchange (TMX), effective May 31, 2011.
MNA clears on an omnibus basis the proprietary and client business of its affiliate in London, Marex Financial (“MF”), a firm authorized and regulated by the Financial Conduct Authority (FCA register number 442767).
With respect to both segregated and secured funds on deposit, 40 customers comprise 50% or more of total funds held for futures customers and four for secured customers, respectively. Approximately 85% to 90% of the capital of MNA is used to support this clearing business. The remaining 10% to 15% of the capital is used to support the execution-only give-up business as noted below.
The Firm also conducts execution-only give-up business whereby it executes orders on an exchange which are then given-up to the customers’ clearing broker. MNA does not accept any customer funds for this execution-only business.
MNA’s customer base includes commercial and institutional accounts, professional traders, managed futures accounts and retail customers. The primary markets are the commodity markets across Metals, Agricultural, Energy products and interest rates and currencies both in the USA, Europe and Asia.
For those US exchanges for which MNA is not a clearing member, MNA has the client omnibus relationship with ADM Services Investor Services, Inc. and Credit Suisse Securities (USA) LLC to clear the business on our behalf.
Through its London affiliate, MF, and its relationship with RBC Dominion Securities, Inc., MNA has the ability to provide its US clients access to trade on futures and options on futures of foreign exchanges.
MNA maintains segregated and secured funds at certain depositories. Within 45 days of the end of each quarter, MNA’s credit analyst will evaluate the segregated and secured funds depositories and present the evaluation to the Executive Committee, based on the following criteria: • Financial capitalization • Creditworthiness • Operational reliability • Access to liquidity • Concentration of deposits • Federal insurance availability • Regulatory oversight structure • Recommendation on changes in depositories
In addition, when there are material changes with a segregated or secured fund depository, MNA will initiate an evaluation of the depository.
D. MATERIAL RISKS
The Firm is subject to credit risk from its counterparties – the risk that those counterparties will not fulfil their obligation. In the normal course of business, the Company’s customer and correspondent clearance activities involve the execution, settlement, and financing of various customer transactions. These activities may expose the Firm to off-balance-sheet risk in the event the customer or other broker is unable to fulfil its contracted obligations and the Firm has to purchase or sell the financial instrument underlying the contract at a loss. The Firm’s exposure to credit risk associated with non-performance of the customers in fulfilling their contractual obligations pursuant to futures transactions can be directly affected by volatile trading markets that may impair the customer’s ability to satisfy their obligations to the Company.
The Firm does not anticipate non-performance by clients or counterparties in the preceding situation. If either a customer or counterparty fails to perform, the Firm may be required to discharge the obligation of the nonperforming party, and in such circumstances, the Firm may sustain a loss. The Firm has a policy of reviewing, as considered necessary, the credit standing of each counterparty with which it conducts business.
Market risk is the risk that a change in the level of one or more market prices, rates, indices, volatilities, correlations or other factors, such as liquidity, will result in losses for a specified position or portfolio. As the Firm does not engage in proprietary trading, its exposure to market risk is minimal.
Liquidity risk is the risk the Firm fails to meet its day to day capital and cash flow requirements. The Group Treasury Department manages liquidity risk in MNA under the Group Liquidity Risk Framework. It has implemented robust cash management policies and procedures that monitor liquidity daily to ensure that MNA has sufficient resources to meet its margin requirement at clearing houses and third- party brokers.
MNA is permitted to invest customer segregated and secured funds deposited by customers as permitted by CFTC Regulation 1.25. The Firm also invests its own funds. MNA is responsible for any investment losses. MNA manages the risk of investment loss with conservative investment policies in which the Firm invests in highly liquid instruments with high credit quality such as U.S. government obligations and bank demand deposits. As noted above, MNA continually evaluates the creditworthiness of the depositories holding customer segregated and secured funds.
E. NAME OF THE COMPANY’S DESIGNATED SELF-REGULATORY ORGANIZATION
The Firm’s designated self-regulatory organization is the Chicago Mercantile Exchange (CME). Its website address is www.cmegroup.com.
The Firm’s annual audited financial statements are made available on its website.
F. LISTING OF ANY MATERIAL ADMINISTRATIVE, CIVIL, CRIMINAL OR ENFORCEMENT COMPLAINTS OR ACTIONS
The Firm settled with the CFTC in September 2020 to pay a monetary penalty of US$ 250,000 for failure to meet minimum adjusted net capital requirements. MNA improperly accounted for deductions arising out of an agreement that it entered to guarantee a revolving line of credit for an affiliated company when computing its net capital requirement.
G. OVERVIEW OF CUSTOMER FUND SEGREGATION
The brief overview documented below has been obtained from the Futures Industry Association (FIA) “Frequently Asked Questions of Protection of Customer Funds”. This can be viewed at http://www.futuresindustry.org/downloads/PCF_questions.pdf
FCMs may maintain up to three different types of accounts for customers, depending on the products a customer trades:
(i) a Customer Segregated Account for customers that trade futures and options on futures listed on US futures exchanges; (ii) a 30.7 Account for customers that trade futures and options on futures listed on foreign boards of trade; and (iii) a Cleared Swaps Customer Account for customers trading swaps that are cleared on a derivatives clearing organization (DCO) registered with the Commission.
The requirement to maintain these separate accounts reflects the different risks posed by the different products. Cash, securities and other collateral (collectively, funds) required to be held in one type of account, e.g., the Customer Segregated Account, may not be commingled with funds required to be held in another type of account, e.g., the 30.7 Account, except as the Commission may permit by order.
Customer Segregated Account - Funds that Segregated Customers deposit with an FCM, or that are otherwise required to be held for the benefit of customers, to margin futures and options on futures contracts traded on futures exchanges located in the US, i.e., designated contract markets, are held in a Customer Segregated Account in accordance with section 4d(a)(2) of the Commodity Exchange Act (CEA) and Commission Rule 1.20. Customer Segregated Funds held in the Customer Segregated Account may not be used to meet the obligations of the FCM or any other person, including another customer.
All Customer Segregated Funds may be commingled in a single account, i.e., an omnibus Customer Account, and held with: (i) a bank or trust company located in the US; (ii) a bank or trust company located outside of the US that has in excess of $1 billion of regulatory capital; (iii) an FCM; or (iv) a DCO. Such commingled account must be properly titled to make clear that the funds belong to, and are being held for the benefit of, the FCM’s Segregated Customers. Unless a customer provides instructions to the contrary, an FCM may hold Customer Segregated Funds only: (i) in the US; (ii) in a money center country; or (iii) in the country of origin of the currency.
An FCM must hold sufficient US dollars in the US to meet all US dollar obligations and sufficient funds in each other currency to meet obligations in such currency. Notwithstanding the foregoing, assets denominated in a currency may be held to meet obligations denominated in another currency (other than the US dollar) as follows: (i) US dollars may be held in the US or in money center countries to meet obligations denominated in any other currency; and (ii) funds in money center currencies may be held in the US or in money center countries to meet obligations denominated in currencies other than the US dollar.
30.7 Customer Secured Account - Funds that 30.7 Customers deposit with an FCM, or that are otherwise required to be held for the benefit of 30.7 Customers, to margin futures and options on futures contracts traded on foreign boards of trade, i.e., 30.7 Customer Funds, and sometimes referred to as the foreign futures and foreign options secured amount, are held in a 30.7 Account in accordance with Commission Rule 30.7.
Funds required to be held in the 30.7 Account for or on behalf of 30.7 Customers may be commingled in an omnibus 30.7 Account and held with: (i) a bank or trust company located in the US; (ii) a bank or trust company located outside the US that has in excess of $1 billion in regulatory capital; (iii) an FCM; (iv) a DCO; (v) the clearing organization of any foreign board of trade; (vi) a foreign broker; or (vii) such clearing organization’s or foreign broker’s designated depositories. Such commingled account must be properly titled to make clear that the funds belong to, and are being held for the benefit of, the FCM’s 30.7 Customers. CFTC Rule 30.7 does restrict the amount of such funds that may be held outside the US.
Cleared Swaps Customer Sequestered Account - Funds deposited with an FCM, or otherwise required to be held for the benefit of customers, to margin swaps cleared through a registered DCO, i.e., Cleared Swaps Customer Collateral, are held in a Cleared Swaps Customer Account in accordance with the provisions of section 4d(f) of the Act and Part 22 of the Commission’s rules. Funds required to be held in a Cleared Swaps Customer Account may be commingled in an omnibus account and held with: (i) a bank or trust company located in the US; (ii) a bank or trust company located outside of the US that has in excess of $1 billion of regulatory capital; (iii) a DCO; or (iv) another FCM. Such commingled account must be properly titled to make clear that the funds belong to, and are being held for the benefit of the FCM’s Cleared Swaps Customers.
It should be noted that in the event of the insolvency of the Firm or the insolvency of a foreign broker or foreign depository that is holding customer funds, customer funds held in foreign jurisdictions may be subject to a different bankruptcy regime and legal system than if the funds were held in the U.S. In addition, customers are also subject to fellow customer risk in foreign jurisdictions and that, for purposes of bankruptcy protection, a customer that trades only in one country or in one market is also exposed to fellow customer risk from losses that may be incurred in other countries and other markets. The Firm does not maintain a cleared swaps customer sequestered account.
H. DISCLOSURE STATEMENT REGARDING SEPARATE ACCOUNTS
MNA permits certain customers to establish and maintain separate accounts with MNA. Such separate accounts may be: (i) managed by different asset management firms, introducing brokers or associated persons; (ii) managed as separate investment portfolios by the same asset management firm, introducing broker or associated person; (iii) subject to liens in connection with operating loans that contractually obligate an FCM to treat the accounts separately; or (iv) otherwise required for regulatory or appropriate business purposes. Subject to the terms and conditions of CFTC Letter No. 19-17 (https://www.cftc.gov/csl/19-17/download), MNA treats such separate accounts as accounts of separate entities. Among other things, MNA may calculate the margin requirements for each separate account independently from all other separate accounts of the same customer and may disburse excess funds from one separate account notwithstanding that another separate account is undermargined.
Among other terms and conditions set out in CFTC Letter No. 19-17, MNA is required to advise its customers that are permitted to maintain separate accounts that, in the unlikely event of MNA’s bankruptcy, the customer will be treated no differently from other customers as a result of having maintained separate accounts with MNA. In particular, all separate accounts maintained for or on behalf of any such customer will be combined in determining such customer’s rights and obligations under the applicable provisions of the U.S. Bankruptcy Code and Part 190 of the Commodity Futures Trading Commission’s Regulations.
I. FILING OF CUSTOMER COMPLAINTS
If required, customers have the opportunity to file a complaint against the Firm to the CME, the Firm’s DSRO. Complaints can be filed anonymously by contacting Market Regulation at 312-341-7970 between the hours of 8AM and 5PM Central Time. In addition, customer complaints can be filed electronically by visiting the CME’s website at www.cmegroup.com
Further, complaints can be filed with National Futures Association, the futures industry association. A complaint can be filed online with the NFA at www.nfa.futures.org
J. FINANCIAL DATA AS OF January 31, 2021
Net Assets US$ 24,156,567 Ownership Equity US$ 24,156,567 Adjusted Net Capital US$ 155,302,087 The US$ value of the Firm’s proprietary margin US$ 0.00 – The Firm does not take any proprietary requirements as a percentage of the aggregate margin positions. requirement for all futures customers The aggregate notional value, by asset class, of all non- US$ 0.00 – The Firm does not enter into any OTC hedged, principal over-the-counter (OTC) transactions. trades as principal. The amount and purpose of any committed unsecured The Firm has no short-term lines of credit. The Firm lines of credit (or similar short-term funding) of the has a subordinated debt loan with its Parent AS OF Firm that has been obtained but not yet drawn upon. January 31, 2021 of US$ 200 million for which US$ 184,000,000 (one hundred eighty-four million US dollars) is drawn down. The aggregated amount of financing the Firm provides US$ 0.00 – The Firm clears US exchange traded for customer transactions involving illiquid financial derivatives only. product for which it is difficult to obtain timely and accurate prices. The percentage of all customer receivable balances 0% - The Firm has not written-off any customer that the Firm has written-off as uncollectable during balances. the past 12-month period, as compared to the current balance of funds held for all customers.
The Firm’s audited financial statements can be viewed at www.marexspectron.com
K. SUMMARY OF RISK PRACTICES, CONTROLS AND PROCEDURES
Effective risk management is at the core of Marex Spectron’s business operations. In place are clear risk management objectives which are delivered through established risk management processes. The Marex Spectron Group (the “Group”) views risk management as a key factor in delivering its strategic business aims and objectives whilst ensuring its long term sustainability and effective corporate governance. Business strategy, risk strategy and risk appetite are all linked to ensure that decision- making across the group reflects the correct approach to risk and that it is in line with the risk appetite and risk strategy of the organization.
By taking into account the relevant risks posed across each of our business lines, the effective management of capital and liquidity within Marex Spectron is optimized.
In pursuit of effective risk governance, a ‘Three lines of Defence’ model has been adopted in conjunction with a strong risk culture, good communication and understanding and a strong sense of risk awareness across the Group. The risk governance is built and run on a “three lines of defence model” (3loD):
• The first line of defence covers the controls in place to deal with and manage the day-to-day risk management within the business units, support functions and embedded operational risk staff; • The second line of defence consists of the specialist control functions which make up the Risk Management infrastructure of the Group; and • The third line of defence is Marex Spectron’s Internal Audit Function auditing and covering all aspects of both the first and second line of defence.
There is a clearly defined suite of risk tools, processes, policies and procedures in place that allow for the successful monitoring and control of the risks of the group and a clearly defined escalation/reporting process in place feeding to Senior Management and key staff within the group. The Control Framework consists of the following components:
• Controls – The controls are the procedures which ensure that business is conducted in line with policy and achieves the outcomes intended by management. • Monitoring – The effectiveness of the internal control framework is monitored with a combination of on-going and ad-hoc evaluation. • Risk Assessment – Identification and analysis of risks to achieving the Business Unit’s objectives. This forms the basis for identifying where controls maybe appropriate. • Control Environment – Sets the tone of the Group. There is a clear set of values exemplified by management and understood by all staff. Employees understand their accountabilities and are competent. • Information and Communication – Relevant information relating to assessing business performance of risk and controls is captured and communicated in a timely manner. There is an effective use of internal and eternally generated information and there are clear escalation procedures of significant issues.
In addition, specific risk management tools include the following:
• Risk management oversight on a 24-hour basis whenever markets are open; • Risk management tools that provide real-time updates for substantially all customer trading activity and underlying market moves; • Material margin calls are typically collected via wire transfer on the day the margin call is issued. In addition, the Firm reserves the right to collect margin deficiencies on an intra-day basis, which may occur when there are significant underlying market moves; • Regular customer open positions stress testing based on underlying market moves with the stress testing results review by management; • Daily risk management reports to management that summarize current customer trading activity, trading gains or losses, and material margin calls; • Risk Committee reporting structure in which material risk items are discussed with senior management and the principals; and • Electronic trading platforms have pre-execution risk limits. For internal control purposes, electronic trading limit setting process is separate from the trading limit approval process. Further, the Firm has risk management tools that summarize all customer electronic trading limits for the major electronic platforms offered by the Firm. A regular review of electronic trading limits is performed to ensure that the limits are appropriate for the customers’ current trading activity and financial position.