Commodity Futures Trading Commission Rule 1.55
ADVANTAGE FUTURES LLC
The Commodity Futures Trading Commission (Commission) requires each futures commission merchant (FCM), including Advantage Futures LLC (“Advantage” or “the Firm”), to provide the following information to a customer prior to the time the customer first enters into an account agreement with the FCM or deposits money or securities (funds) with the FCM. Except as otherwise noted below, the information set out is as of April 23, 2019. Advantage will update this information annually and as necessary to account for any material change to its business operations, financial condition or other factors that Advantage believes may be material to a customer’s decision to do business with Advantage. Nonetheless, Advantage’s business activities and financial data are not static and will change in non-material ways frequently throughout any 12-month period.
I. Firm Information and Principals
Advantage Futures LLCis the primary operating subsidiary of Advantage Financial LLC, the holding company.Advantage Futures LLC is registered with the CFTC as a Futures Commission Merchant, Commodity Pool Operator and Commodity Trading Advisor and is a member of the National Futures Association (NFA Member ID # 327359). Advantage does not currently manage any accounts nor have any funds under its management. Advantage Securities LLC operates as a subsidiary of Advantage Futures LLC. Advantage Securities LLC is a registered Broker Dealer with FINRA and currently is not clearing any business.
Advantage Financial LLC also has subsidiaries Advantage Capital Resource LLC, LaSalle Street Technology LLC and Advantage Building LLC. Advantage Capital Resource LLC provides margin financing for customers under certain select conditions, and is not currently providing any financing. Advantage Building LLC is an entity formed to hold the ownership of an office building located in Downers Grove, Illinois which serves as the Firm’s business continuity site as well as office space for clients. LaSalle Street Technology LLC provides technology and support services.
Advantage’s Principal Place of Business and contact information:
Headquarters: 231 S. LaSalle Street
Chicago, IL 60604
Telephone Number: 312-800-7000
Fax Number: 312-800-7810
Business Continuity Site and Branch Office:
1501 West Warren Avenue
Downers Grove, IL 60515
Telephone Number: 312-800-7000
Fax Number: 312-800-7810
Joseph M. Guinan, Jr. Founding Chairman & CEO
Business Location: Headquarters
The CEO has oversight and responsibility of overall operations and resources of the Firm and acts as the main point of communication amongst the members.
Mr. Joseph Guinan founded Advantage Futures in 2003. Mr. Guinan previously held various trading and management positions from 1981 to 1995 at Irving Trust, Kidder Peabody, and Merrill Lynch. He later served as President and CEO of Fuji Futures Inc. (one of four companies merged to form Mizuho Securities USA) where he worked from 1995 to 2003. Mr. Guinan is a registered floor broker and a member of the Chicago Board of Trade and NYMEX. Mr. Guinan received a BA in economics and an MBA in finance and accounting from Columbia University.
William Harrington III EVP – Business Development
Business Location: Headquarters
Reporting to the CEO, EVP – Business Development is responsible for leading the development of new business for Advantage Futures. This encompasses the development and implementation of a firm wide sales plan.
Mr. William Harrington joined Advantage Futures in 2004. Mr. Harrington is responsible for overseeing, managing, and coordinating the Firm’s business development activities. Prior to this position, Mr. Harrington served as Senior Vice President of Institutional Business Development at Advantage. Mr. Harrington began his career in the futures industry with Merrill Lynch Futures in 1987 before joining Fuji Securities (later Mizuho Securities USA) in 1995 as Vice President of Institutional Sales. He worked closely with large institutional accounts emphasizing interest rate, foreign currency and equity futures and options trading. Bill earned a BBA in finance from the University of Notre Dame.
Lisa C. Jones Chief Compliance Officer
Business Location: Headquarters
Reporting to the CEO, the CCO is responsible for ensuring Advantage Futures related business is conducted in compliance with current CFTC, NFA, as well as Exchange rules and regulations.
Ms. Lisa Jones joined Advantage Futures in 2004. Ms. Jones began her career in the futures industry in 1990 at Lind-Waldock & Company, a registered Futures Commission Merchant, where she served as Compliance Officer. Ms. Jones later joined the Bank of Montreal and Harris Bank as the US Treasury Compliance Manager in 1995, where she was primarily responsible for overseeing US Treasury activities, including exchange traded and over the counter markets. She later served in a variety of compliance roles within The Fuji Bank Ltd.’s subsidiaries, including Chief Compliance Officer of Fuji Futures Inc. Ms. Jones holds a BBA from Loyola University of Chicago.
Sung Soo Kim
Business Location: N/A
Mr. Sung Soo Kim is a passive investor of Advantage Financial LLC. Mr. Kim does not have management oversight for the business activities or day to day responsibilities of the operations of the Firm.
Michael McLaughlin President – Institutional Sales
Business Location: Headquarters
Reporting to the CEO, as President of Institutional Sales at Advantage Futures Michael McLaughlin oversees the CME and CBOT execution teams and is responsible for leading business development in these areas.
Mr. Michael McLaughlin joined Advantage Futures in 2004. Mr. McLaughlin began his career in the financial industry at Merrill Lynch in 1986, where he served as Manager of short-term interest rates until 1995. He later held the position of Managing Director at Fuji Futures where he managed the CME, CBOT and upstairs sales staff for eight years. Mr. McLaughlin holds a BS in finance from the University of Iowa.
Carlos Rodriguez Chief Financial Officer
Business Location: Headquarters
Reporting to the CEO, the CFO is responsible for overseeing the accounting process of Advantage Futures to protect the assets of the company, ensuring regulatory compliance and protection of customer funds, accurately reporting the Firm’s results, and forecasting the Firm’s needs for capital.
Mr. Carlos Rodriguez joined Advantage Futures in May 2017. Prior to Advantage, Mr. Rodriguez worked for CME Group over 20 years, most recently serving as Executive Director in CME Group’s Financial and Regulatory Surveillance Department. Mr. Rodriguez holds a BS in Accountancy from the University of Illinois at Chicago.
Curt Paloumpis: Chief Risk Officer
Business Location: Headquarters
Reporting to the CEO, the CRO provides independent monitoring, controlling and reporting on the nature and extent of material risks and financial exposure, and ensures the implementation of and compliance with enterprise risk management policies and procedures.
Mr. Curt Paloumpis rejoined Advantage Futures in October 2014. Prior to rejoining the Firm, Mr. Paloumpis was on the Firm’s Sales and Execution team from June 2003 to June 2011. In the interim, Mr. Paloumpis worked as a proprietary trader at various trading firms. Mr. Paloumpis has extensive experience in the futures and derivatives industry starting back in 1983 with Drexel Burnham Lambert as a short-term interest rate trader. Mr. Paloumpis was a member of the Chicago Mercantile Exchange from 1990 to 2010. He earned a BS in Finance from Southern Illinois University.
II. Firm’s Business
Advantage Futures is a clearing member of CME Group (including CME, CBOT, NYMEX, and COMEX), ICE Futures Europe, ICE Clear Europe, Options Clearing Corp., CBOE Futures Exchange, and Nasdaq Futures Exchange, as well as a non-clearing member of EUREX. For exchanges in which Advantage Futures is not a member, it has established carrying broker relationships to facilitate client access to products on such exchanges. Advantage Futures currently has carrying broker relationships with ABN Amro Clearing Chicago LLC, RBC Capital Markets, LLC, Phillip Capital Inc., Rosenthal Collins Group, LLC (a division of Marex North America LLC), and Nissan Securities Co., Ltd.
Client commissions derived from clearing trades for futures and options on futures are the Firm’s primary source of revenue. Advantage Futures clears trades for professional traders, hedge funds, proprietary trading groups, institutional clients, non-clearing FCMs and individuals. Advantage Futures offers client execution services via CME Group trading floor and office-based personnel. Advantage Futures has an agreement with ADM Investor Services to provide global execution desk services to our clients. Trades executed by ADM Investor Services are given-up to Advantage Futures for clearing. Advantage Futures hosts technology equipment and provides other technology services for clients.
Most volume cleared through Advantage Futures is self-executed electronically by clients. The Firm’s clients reflect various trading styles, including spreading, relative value, option market making, directional, and high frequency day trading. Advantage clients are located in 61 different countries, territories, and jurisdictions.
Advantage Futures does not conduct speculative proprietary trading. The Firm operates as an agency model brokerage company does not trade for its own account, focusing its resources and 100% of the Firm’s capital (except for a de minimis amount of Firm capital used for hedging the Firm’s foreign currency exposure) in support of client business.
Advantage Futures’ Designated Self-Regulatory Organization is the CME Group. Their website is http://www.cmegroup.com/clearing/financial-and-regulatory-surveillance.html where additional information can be obtained.
A. Permitted Depositories and Counterparties
Advantage recognizes its responsibility to protect and separately account for funds in both the Customer Segregated and Customer Secured 30.7 origins (collectively “segregated funds”). This is necessary for the protection of both the customer and the Firm, as the FCM is ultimately responsible for any loss of segregated funds due to their mishandling. To that end, Advantage has developed procedures for:
- Evaluating the suitability of the depositories designated for holding segregated funds of Advantage’s customers;
- Opening and documenting segregated accounts at approved depositories;
- Monitoring approved depositories;
- Establishing an appropriate level of FCM residual interest in these segregated accounts, including regular reviews of the suitability of that level;
- Withdrawing funds from segregated accounts when the withdrawal is not for the benefit of customers;
- Assessing the suitability and appropriate allocation of segregated funds to specific investments permitted per CFTC Rule 1.25.
B. Evaluating the Suitability of Customer Fund Depositories
There are three primary depositories holding segregated funds of Advantage’s customers: banks, carrying brokers and clearing organizations. Advantage has established policies and procedures reasonably designed to ensure that the institutions into which Advantage deposits customer segregated funds are financially sound and otherwise appropriate for this purpose.
The criteria utilized in this analysis of banks, clearing organizations and carrying brokers include but are not limited to a review of the following, as applicable:
- Institutional size and capitalization
- Access to liquidity
- Operational reliability
- Concentration of segregated funds with any depository or group of depositories
- Regulatory oversight
- Outside rating agency opinions
- Availability of deposit insurance
III. Material Risks
Advantage faces a number of potential risks throughout the ordinary course of business, including Credit Risk, Market Risk, Operational Risk, Legal, Regulatory & Compliance Risk, Human Resources Risk, Financial Risk, Information Technology Risk, and Strategic Risk, each defined as follows:
Credit Risk – The risk of loss from failure of client or counterparty to meet financial obligations or default of client or counterparty.
Market Risk – The risk of loss from fluctuations in market prices or changes in market conditions that impact investment values or result in client deficit balances. Also includes foreign currency exposure.
Operational Risk – The risk of loss due to inadequate systems and controls, human error, or management failure.
Legal, Regulatory, & Compliance Risk – The risk of fines, penalties, or reputational damage due to real or perceived noncompliance with laws, rules, regulations, agreements, or failure to meet professional obligations.
Human Resources Risk – The risk of loss due to ineffective hiring/recruitment, loss of key employees, inadequate corporate governance, or legal risks arising from employees.
Financial Risk – The risk of loss or missed business opportunities due to insufficient financial controls, including capital risk, liquidity risk, segregation risk, and accounting risk.
Information Technology Risk – The risks associated with critical systems, technology practices, cybersecurity, business data, and interruption of business activity.
Strategic Risk – The risk of internal or external events that inhibit or prevent the Firm from achieving objectives or damage the Firm’s reputation.
Advantage Futures does not conduct any speculative proprietary trading. Therefore, no conflicts exist when the Firm acts as a client’s executing broker or clearing firm as we are not competing against customer trading or on the other side of customer orders.
A. Investments Made by the Firm
To ensure compliance with regulatory capital requirements and sufficient liquidity to meet ongoing business obligations, Advantage holds a significant portion of its assets in cash, US Treasury and Agency securities and US Treasury/Agency Reverse Repurchase Agreements.
The Firm has a house proprietary account to hedge the Firm’s foreign currency exposure and minimize risk in foreign currency price fluctuation.
Advantage Futures’ investments of customer funds comply with CFTC Regulation 1.25. As permitted under CFTC regulations, client funds are invested in cash, US Treasury and Agency securities and Reverse Repurchase Agreements with US Treasury/Agency securities. Advantage Futures’ daily financial and quarterly investment information can be found on the Firm’s website www.advantagefutures.com under section About/Financials.
B. Firm’s Creditworthiness, Leverage, Capital, Liquidity, Principal Liabilities, Balance Sheet Leverage and Other Lines of Business
Advantage Futures pays its financial obligations in a timely manner and has never failed to meet a payment obligation to an exchange, clearing organization, or carrying broker. When and as needed, the Firm has been able to establish new banking, exchange, and carrying broker relationships. As an LLC and non-publicly held company, Advantage does not have a formal credit rating with major credit rating agencies.
Advantage’s measure of balance sheet leverage as computed under NFA Financial Requirements Section 16 was 3.45 as of December 31, 2018.
Advantage strives to maintain sufficient capital necessary to support our business needs and comply with regulatory requirements. As of February 28, 2019, Advantage had Net Capital of $20,463,407, Adjusted Net Capital of $20,317,790 and Excess Net Capital of $12,820,850.
Advantage strives to transparently reflect our preference for liquidity by graphically displaying how we invest our Customer Segregated and Customer Secured 30.7 funds on our website. Additional liquidity for Advantage is provided via a $36,000,000 delivery line of credit by one of our banking relationships. If, when and as additional liquidity may be needed, Advantage will seek equity or debt funding from private sources of capital.
Principle liabilities for Advantage are the balances in our customer and non-customer accounts. As of February 28, 2019, 95.44% of the Firm’s liabilities were comprised of equity in customer and non-customer commodity accounts carried by the Firm and other non-customer obligations. Of the remaining liabilities, 2.62% represents liabilities subordinated to claims of general creditors subject to a satisfactory subordination agreement approved by the Firm’s Designated Self-Regulatory Organization. Various other payables and accrued expenses (including compensation and accounts payable) represent the remaining 1.94% of the liabilities carried by Advantage as of February 28, 2019.
C. Risks to the Firm Created by its Affiliates
Advantage does not invest any customer funds or house funds with an affiliated entity.
Advantage Securities LLC is a 100% owned subsidiary of Advantage Futures LLC. Advantage Securities LLC is a registered Broker Dealer with FINRA and the Securities and Exchange Commission. At this time, Advantage Securities does not conduct any securities business and maintains excess net capital of $569,538 as of February 28, 2019. Although a regulated entity with separate policies and procedures in place, the parent company Advantage Futures may have financial exposure if the broker dealer became illiquid or required additional capital to support its business activities.
No other affiliates of the Firm pose a material risk to the FCM business.
D. Significant Liabilities and Material Commitments
Advantage has a long-term liability in the form of its sub-sub-lease on its headquarters located at 231 South LaSalle Street, Suite 1400, Chicago, IL. The sub-sub-lease is a non-cancellable operating lease with rental commitments totaling $4,492,800 beyond March 01, 2019.
Advantage also has a contingent liability as the guarantor of loans collateralized by memberships on various commodities exchanges totaling in aggregate approximately $69,375 as of February 28, 2019.
E. Summary of Current Risk Practices, Controls and Procedures
Pursuant to CFTC Regulation 1.11(c), Advantage Futures has a risk management program to establish, maintain, and enforce a system of risk management policies and procedures designed to monitor and manage risks associated with the Firm’s activities. The Firm maintains written policies and procedures that describe the risk management program, approved in writing by the Firm’s governing body.
The Firm maintains a risk management program framework which describes the principles, policies, and functional responsibilities for risk management across the firm. The framework identifies the goals, business context, regulatory background, business model, governance structures, supervision, methodologies, controls, monitoring, reporting, and resources utilized to manage risk.
Advantage Futures maintains a set of specific risk management policies, which identifies the various risks Advantage faces and describes how the Firm manages these risks. Advantage has categorized risk exposures into areas of Credit Risk, Market Risk, Operational Risk, Legal, Regulatory & Compliance Risk, Human Resources Risk, Financial Risk, Information Technology Risk, and Strategic Risk. While risks are separated into categories, the Firm recognizes its business activities present various combinations and concentrations of risks. The firm’s written risk management program also establishes risk tolerance limits, accounts for risks posed by affiliates and all lines of business, and includes policies and procedures for detecting and appropriately escalating breaches of risk tolerance limits.
IV. Customer Funds Segregation
Below is a basic overview of customer fund segregation, futures commission merchant collateral management and investments, futures commission merchants, and joint futures commission merchant/broker dealers. Please note that Advantage Futures is not a registered Swap Dealer and does not support Swap business nor hold Cleared Swaps Customer Accounts. Therefore, any reference to such is not applicable to Advantage.
Customer Accounts.FCMs may maintain up to three different types of accounts for customers, depending on the products a customer trades:
(i) Customer Segregated Accounts for customers that trade futures and options on futures listed on US futures exchanges;
(ii) 30.7 Accounts for customers that trade futures and options on futures listed on foreign boards of trade; and
(iii) Cleared Swaps Customer Accounts for customers trading swaps that are cleared on a 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, Customer 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 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 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.
Customer Segregated Funds may be commingled in a single account, i.e., a customer 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) 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 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 Account.Funds that 30.7 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 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 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. As explained below, Commission Rule 30.7 restricts the amount of such funds that may be held outside of the US.
Customers trading on foreign markets assume additional risks. Laws or regulations will vary depending on the foreign jurisdiction in which the transaction occurs, and funds held in a 30.7 Account outside of the US may not receive the same level of protection as Customer Segregated Funds. If the foreign broker carrying 30.7 Customer positions fails, the broker will be liquidated in accordance with the laws of the jurisdiction in which it is organized, which laws may differ significantly from the US Bankruptcy Code. Return of 30.7 Customer Funds to the US will be delayed and likely will be subject to the costs of administration of the failed foreign broker in accordance with the law of the applicable jurisdiction, as well as possible other intervening foreign brokers, if multiple foreign brokers were used to process the US customers’ transactions on foreign markets.
If the foreign broker does not fail but the 30.7 Customers’ US FCM fails, the foreign broker may want to assure that appropriate authorization has been obtained before returning the 30.7 Customer Funds to the FCM’s trustee, which may delay their return. If both the foreign broker and the US FCM were to fail, potential differences between the trustee for the US FCM and the administrator for the foreign broker, each with independent fiduciary obligations under applicable law, may result in significant delays and additional administrative expenses. Use of other intervening foreign brokers by the US FCM to process the trades of 30.7 Customers on foreign markets may cause additional delays and administrative expenses.
To reduce the potential risk to 30.7 Customer Funds held outside of the US, Commission Rule 30.7 generally provides that an FCM may not deposit or hold 30.7 Customer Funds in permitted accounts outside of the US except as necessary to meet margin requirements, including prefunding margin requirements, established by rule, regulation, or order of the relevant foreign boards of trade or foreign clearing organizations, or to meet margin calls issued by foreign brokers carrying the 30.7 Customers’ positions. The rule further provides, however, that, in order to avoid the daily transfer of funds from accounts in the US, an FCM may maintain in accounts located outside of the US an additional amount of up to 20 percent of the total amount of funds necessary to meet margin and prefunding margin requirements to avoid daily transfers of funds.
Cleared Swaps Customer 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. Cleared Swaps Customer Accounts are sometimes referred to as LSOC Accounts. LSOC is an acronym for “legally separated, operationally commingled.” 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.
Investment of Customer Funds.Section 4d(a)(2) of the Act authorizes FCMs to invest Customer Segregated Funds in obligations of the United States, in general obligations of any State or of any political subdivision thereof, and in obligations fully guaranteed as to principal and interest by the United States. Section 4d(f) authorizes FCMs to invest Cleared Swaps Customer Collateral in similar instruments.
Commission Rule 1.25 authorizes FCMs to invest Customer Segregated Funds, Cleared Swaps Customer Collateral and 30.7 Customer Funds in instruments of a similar nature. Commission rules further provide that the FCM may retain gains earned and is responsible for investment losses incurred in connection with the investment of Customer Funds. However, the FCM and customer may agree that the FCM will pay the customer interest on the funds deposited.
Permitted investments include:
(i) Obligations of the United States and obligations fully guaranteed as to principal and interest by the United States (U.S. government securities);
(ii) General obligations of any State or of any political subdivision thereof (municipal securities);
(iii) Obligations of any United States government corporation or enterprise sponsored by the United States government (U.S. agency obligations);
(iv) Certificates of deposit issued by a bank (certificates of deposit) as defined in section 3(a)(6) of the Securities Exchange Act of 1934, or a domestic branch of a foreign bank that carries deposits insured by the Federal Deposit Insurance Corporation;
(v) Commercial paper fully guaranteed as to principal and interest by the United States under the Temporary Liquidity Guarantee Program as administered by the Federal Deposit Insurance Corporation (commercial paper);
(vi) Corporate notes or bonds fully guaranteed as to principal and interest by the United States under the Temporary Liquidity Guarantee Program as administered by the Federal Deposit Insurance Corporation (corporate notes or bonds); and
(vii) Interests in money market mutual funds.
The duration of the securities in which an FCM invests Customer Funds cannot exceed, on average, two years.
An FCM may also engage in repurchase and reverse repurchase transactions with non-affiliated registered broker-dealers, provided such transactions are made on a delivery versus payment basis and involve only permitted investments. Funds or securities received in repurchase and reverse repurchase transactions with Customer Funds must be held in the appropriate Customer Account, i.e., Customer Segregated Account, 30.7 Account or Cleared Swaps Customer Account. Further, in accordance with the provisions of Commission Rule 1.25, such funds or collateral must be received in the appropriate Customer Account on a delivery versus payment basis in immediately available funds (NFA publishes twice-monthly a report, which shows for each FCM, inter alia, the percentage of Customer Funds that are held in cash and each of the permitted investments under Commission Rule 1.25. The report also indicates whether the FCM held any Customer Funds during that month at a depository that is an affiliate of the FCM).
Funds deposited with Advantage Futures LLC for trading futures and options on futures contracts on either US or foreign markets are not protected by the Securities Investor Protection Corporation.
Further, Commission rules require Advantage Futures to hold funds deposited to margin futures and options on futures contracts traded on US designated contract markets in Customer Segregated Accounts.
Similarly, Advantage Futures must hold funds deposited to margin options on futures contracts traded on foreign boards of trade in a 30.7 Account. In computing its Customer Funds requirements under relevant Commission rules, Advantage Futures may only consider those Customer Funds actually held in the applicable Customer Accounts and may not apply free funds in an account under identical ownership but of a different classification or account type (e.g., securities, Customer Segregated, 30.7) to an account’s margin deficiency. In order to be used for margin purposes, the funds must actually transfer to the identically-owned undermargined account.
For additional information on the protection of customer funds, please see the Futures Industry Association’s “Protection of Customer Funds Frequently Asked Questions” located at http://www.futuresindustry.org/downloads/PCF-FAQs.PDF .
V. Filing a Complaint
A customer that wishes to file a complaint may directly contact Advantage’s compliance department either electronically at email@example.com or by calling 312-800-7000.
Additional options are as follows:
A customer that wishes to file a complaint about Advantage Futures or one of its employees with the Commodity Futures Trading Commission can contact the Division of Enforcement either electronically at
https://forms.cftc.gov/fp/complaintform.aspx or by calling the Division of Enforcement toll-free at 866-FON-CFTC (866-366-2382).
A customer may file a complaint about Advantage Futures or one of its employees with the National Futures Association electronically at http://www.nfa.futures.org/basicnet/Complaint.aspx or by calling NFA directly at 800-621-3570.
A customer may file a complaint about Advantage Futures or one of its employees with the Firm’s DSRO, the Chicago Mercantile Exchange, electronically at: http://www.cmegroup.com/market-regulation/file-complaint.html or by calling the CME at 312.341.3286.
VI. Material Complaints or Actions
At any given time in the normal course of business, Advantage may be involved in or the subject to litigation, investigations, arbitration matters or regulatory reviews, which may or may not seek significant damages. The Firm is currently involved in the following litigation matters.
Advantage v. H.A.L./Hal v. Guinan
In September 2017, the Company filed a lawsuit against H.A.L. NY Holdings, LLC (“HAL”) and Ahron Feferkorn to collect a debit balance. HAL and Feferkorn offered to enter an offer of judgement, which the court entered in November 2017. The Court subsequently entered a modified judgment in January 2018. In March 2018, HAL filed a lawsuit in the U.S. District Court for the Southern District of New York against the Company’s CEO seeking damages for the liquidations at issue in the Company’s complaint against HAL and Feferkorn. The case was transferred to the U.S. District for the Northern District of Illinois and, on behalf of the Company’s CEO, the Company filed a motion to dismiss the complaint in December 2018. On April 16, 2019, the Company’s motion to dismiss was granted on the basis of res judicata.
Advantage v. Herm LLC, et al.
In February 2018, the Company was named as a defendant in multiple reparations claims, and the Company filed its own complaints against these customers in federal and state court in Illinois in March 2018. The complaints relate to debit balances incurred by the customers when the Company liquidated their under-margined accounts, managed by the same commodity trading advisor, on February 5, 2018.
Edwin Johnson v. Advantage Futures, et al.
In June 2018, Edwin Johnson filed a complaint against the Company and two Company employees in the Circuit Court of Cook County. The Company filed a motion to dismiss and was successful in obtaining a dismissal for one of the employee defendants. In January 2019, the Company filed an Answer to the Complaint on behalf of the Company and employee. Currently these proceedings are ongoing.
In the three years preceding the date of this disclosure, an enforcement action was filed against the Firm and its principal(s). All regulatory actions (including enforcement action) taken against the Firm by any Exchange, CFTC or NFA are documented and summarized on the NFA website at:
As a regulated entity, complaints or actions filed against Advantage are generally accessed by the above link. The section of this disclosure document is updated with any material actions or complaints filed against the FCM not otherwise available on the source provided above.
VII. Relevant Financial Data
Advantage Futures’ annual audited financial statements are made available on the Firm’s website at https://www.advantagefutures.com/about/financials/ . Also included are for at least the past 12 months, monthly net capital summaries, monthly segregation statements, daily and monthly segregation and secured statements and investment of client funds historical data.
Other Financial data as of February 28, 2019:
Total Ownership Equity:
Tangible Net Worth:
Firm’s proprietary margin requirement:
Advantage Futures does not conduct speculative proprietary trading. The Firm does maintain an immaterial margin requirement from time to time which represents open positions which hedge the Firm’s currency exposure. This margin requirement represented .2036% of the Firm’s aggregate margin requirement for futures customers and non-customers.
12 customers represent 50% of the FCMs total funds held for futures customers.
2 customers represent 50% of the FCMs total funds held for 30.7 futures customers.
Advantage Futures does not enter into any principal over the counter transactions.
Advantage Futures does not maintain any unsecured lines of credit or similar short-term funding.
Advantage Futures does not provide financing for customer transactions involving illiquid financial products.
Advantage Futures has not written off any new material segregated or secured 30.7 customer receivables as uncollectable during the past 12 month period.
Additional financial information on all FCMs is also available on the Commission’s website at:
Customers should be aware that the National Futures Association (NFA) publishes on its website certain financial information with respect to each FCM. The FCM Capital Report provides each FCM’s most recent month-end adjusted net capital, required net capital, and excess net capital (information for a twelve-month period is available). In addition, NFA publishes twice-monthly a Customer Segregated Funds report, which shows for each FCM: (i) total funds held in Customer Segregated Accounts; (ii) total funds required to be held in Customer Segregated Accounts; and (iii) excess segregated funds, i.e., the FCM’s Residual Interest. This report also shows the percentage of Customer Segregated Funds that are held in cash and each of the permitted investments under Commission Rule 1.25. Finally, the report indicates whether the FCM held any Customer Segregated Funds during that month at a depository that is an affiliate of the FCM.
The report shows the most recent semi-monthly information, but the public will also have the ability to see information for the most recent twelve-month period. A 30.7 Customer Funds report and a Customer Cleared Swaps Collateral report provides the same information with respect to the 30.7 Account and the Cleared Swaps Customer Account.
The above financial information reports can be found by conducting a search for a specific FCM in NFA’s BASIC system
( http://www.nfa.futures.org/basicnet/ ) and then clicking on “View Financial Information” on the FCM’s BASIC Details page.
This disclosure document was first used April 23, 2019.