FINAL NOTICE

JB Drax Honore (UK) Limited
21 Great Winchester St
London
EC2N 2JA

ACTION

1. By an application dated 11 June 2014 (“the Application”) JB Drax Honore (UK)

Limited (“JB Drax Honore”) applied under section 60 of the Financial Services and
Markets Act 2000 (“the Act”) for approval of Rogerio Pinto (“Mr Pinto”) to perform
the controlled function(s) of CF30.

2. For the reasons listed below, the Authority has refused the Application.

SUMMARY OF REASONS

3. On 19 September 2014 JB Drax Honore discontinued its support of the

Application and is no longer prepared to offer the candidate an “arrangement” as
defined in section 59(10) of the Act.

4. In order for the Application to be formally withdrawn within the provisions of

section 61(5) of the Act, the candidate’s consent is necessary. The candidate has
not consented to the withdrawal of the application and has asked the Authority to
determine the Application even though JB Drax Honore is no longer offering an
arrangement to which the Application relates.

5. By its Warning Notice dated 29 October 2014 (“the Warning Notice”) the

Authority gave notice that it proposed to refuse the Application and that JB Drax
Honore and Mr Pinto were entitled to make representations to the Authority about
that proposed action.

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6. As no representations have been received by the Authority from JB Drax Honore

or Mr Pinto within the time allowed by the Warning Notice, the default procedures
in paragraph 2.3.2 of the Authority’s Decision Procedure and Penalties Manual
apply, permitting the Authority to treat the matters referred to in its Warning
Notice as undisputed and, accordingly, to give a Decision Notice.

7. By its Decision Notice dated 12 December 2014 ("the Decision Notice"), the

Authority gave JB Drax Honore and Mr Pinto notice that it had decided to take the
action described above.

8. JB Drax Honore and Mr Pinto had 28 days from the date the Decision Notice was

given to refer the matter to the Upper Tribunal (formerly known as the Financial
Services and Markets Tribunal). No referral was made to the Upper Tribunal
within this period of time or to date.

9. Under section 390(1) of the Act, the Authority, having decided to refuse the

Application and there having been no reference of that decision to the Tribunal,
must give JB Drax Honore and Mr Pinto Final Notice of its refusal.

10. For the reasons set out below, the Authority is not satisfied that the candidate is

a fit and proper person to perform the controlled function to which the Application
relates, in particular that the candidate lacks integrity and competence and
capability.

11. On 23 October 2013, Mr Pinto intentionally breached Section 3.4.5 of the LIFFE

(“London International Financial Futures and Options Exchange”) Trading
Procedures (“Section 3.4.5”). The Authority has concluded that the reason for the
breach was two-fold; to maintain good client relationships and generate personal
commission. To deliberately breach rules to achieve these ends suggests that
Mr Pinto lacks honesty and integrity.

12. A lack of competence and capability: When questioned in interview, Mr Pinto

failed to demonstrate even a basic understanding of the regulatory regime in
which he would be operating following approval. As such the Authority considers
that Mr Pinto failed to demonstrate that he was capable or competent for his
proposed role.

DEFINITIONS

13. The definitions below are used in this Final Notice.

“the Act” means the Financial Services and Markets Act 2000

“the Authority” means the body corporate previously known as the Financial
Services Authority and renamed on 1 April 2013 as the Financial Conduct
Authority

FACTS AND MATTERS

Honesty and integrity:

14. Mr Pinto breached Section 3.4.5 on 23 October 2013. In October 2013 Mr Pinto

was employed by Firm X. Mr Pinto acted as a broker for both buyers and sellers in
the Option on the Robusta Coffee Futures Contract (“Robusta Coffee Option”)
market.

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15. The role Mr Pinto performed entailed seeking buyers and sellers in the Robusta

Coffee Option market. As a broker Mr Pinto then placed client orders and
executed the relevant transactions.

16. Mr Pinto completed trades on behalf of clients using the LIFFE trading electronic

platform by transacting with either an unknown market participant or crossing
with himself on behalf of two clients. If Mr Pinto had both a buyer and a seller
willing to trade at the same price (pre-negotiated or “matching” business),
Mr Pinto could execute such a cross transaction using the LIFFE platform, subject
to the LIFFE Trading Procedures at Sections 3.4.5 and 3.4.6.

17. Section 3.4.5 states:

“Where no bid and/or offer exist in the Central Order Book for the relevant
contract month or strategy, a Request for Quote (“RFQ”) must first be entered for
such contract month or strategy. The matching business may only be entered to
the Trading Host where a period of ….fifteen seconds in the case of Commodity
Options Contracts… (“the RFQ Period”) has elapsed. If the matching business is to
be submitted, the applicable buy and sell orders must be submitted as soon as
practicable and in any event no later than thirty seconds following the RFQ
Period”.

18. Section 3.4.5 requires a market participant who has matching business to submit

a RFQ to the LIFFE market platform. This has the effect of opening up proposed
deals to the whole of the market, giving other market participants an opportunity
to compete. For Commodity Options Contracts (the contracts traded by
Mr Pinto), the market participant who submitted the RFQ must wait 15 seconds
before submitting buy or sell orders. During this 15 second period other market
participants can place orders. After the RFQ Period (15 seconds) the party
submitting the RFQ can then submit buy and sell orders within the next 30
seconds. If a transaction is not completed within this timeframe the RFQ lapses.
If a RFQ has lapsed, a market participant seeking to transact must submit
another RFQ.

19. LIFFE operates on time priority which means that the market participant who

places an order to buy or sell first is automatically prioritised ahead of any other
market participants that subsequently place orders at the same price.

20. On 23 October 2013, Mr Pinto received instructions from a client to buy 250 lots

of a product at the price of 28. Mr Pinto received instructions from another client
to place an order to sell 250 lots of the same product at 28. Mr Pinto therefore
had pre-negotiated business and there was a possibility that he could complete a
cross transaction using the LIFFE platform.

21. Mr Pinto’s initial RFQ attracted a market participant who placed an order to buy.

Instead of trading with that market participant, Mr Pinto waited until the market
participant pulled its bid. By the time this bid was pulled, the RFQ had lapsed. To
complete the cross transaction in compliance with section 3.4.5, Mr Pinto was
required to:


withdraw his buy order


submit a further RFQ


wait 15 seconds


place any buy or sell orders

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22. Mr Pinto did not withdraw the buy order that he had placed although the RFQ had

lapsed. Instead, Mr Pinto submitted a RFQ and then placed a sell order. The cross
transaction was therefore executed in breach of Section 3.4.5.

23. The Authority is of the view that Mr Pinto’s breach was deliberate due to his

knowledge and motivation as well as the training he had received.

24. Mr Pinto indicated during the course of an interview with the Authority that he

understood Section 3.4.5 and was aware at that time that he had breached this
trading procedure.

25. Mr Pinto commenced the cross transaction on 23 October 2013 by submitting a

RFQ as Section 3.4.5 requires. This suggests Mr Pinto was aware of the correct
procedure but deliberately avoided following it. As there was interest from
another market participant, to gain time priority over any offers placed by market
participants, Mr Pinto did not withdraw his buy order. When Mr Pinto submitted
the second RFQ, this had the effect of giving Mr Pinto’s buy order (placed before
the second RFQ), time priority. This ensured that Mr Pinto’s buy order had priority
over any buy orders subsequently placed by market participants at the same
price.

26. At some points during interview with the Authority, Mr Pinto disputed that he fully

understood Section 3.4.5. Mr Pinto alleged that he was told by compliance on i
chat that when completing a cross transaction it was possible to place the buy or
sell order first, then submit the RFQ and then to place the matching business.
However, Mr Pinto has not provided any evidence to support this assertion. This
is contradicted by the fact that Mr Pinto accepted during interview that prior to
executing the cross transaction on 23 October 2013 he understood Section 3.4.5.

Motivation

27. During the interview with the Authority, Mr Pinto explained his motivation to

breach Section 3.4.5 was because he felt under pressure from his client to fulfil
the order. Mr Pinto also acknowledged that completing the buy order would
generate a commission payment to him.

28. Executing the cross transaction was of direct benefit to Mr Pinto as this entitled

him to a commission payment. There was also an indirect benefit to Mr Pinto of
successfully completing an order on behalf of a client.

Training

29. Mr Pinto received training on the LIFFE rules, and specifically Section 3.4.5 at

various stages:

During an interview with the Authority, Mr Pinto stated he received training on
the LIFFE rules when he commenced trading on the LIFFE platform. Mr Pinto
stated that this included training on Section 3.4.5.

Mr Pinto received further training following breaches of Section 3.4.5 in August
2013.

LIFFE notified Firm X of two additional suspected breaches of Section 3.4.5
committed by Mr Pinto on 16 October 2013. In response to these breaches, on 17

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October 2013, Mr Pinto received further training on LIFFE, which covered Section
3.4.5.

30. The Authority therefore considers that Mr Pinto intentionally breached Section

3.4.5 on 23 October 2013 and, as a result of this, Mr Pinto lacks honesty and
integrity. The Authority takes the view that the deliberate breach of a rule is
incompatible with acting with integrity and that, further, a person breaking a rule
for reasons of personal financial gain and/or pressure from external sources
raises concerns as to that person’s integrity.

Competence and capability

31. During interview with the Authority, Mr Pinto was unable to state any of the

standards expected of approved persons.

IMPACT ON FITNESS AND PROPRIETY

32. The regulatory provisions relevant to this Final Notice are referred to in Annex A.

33. The Authority is of the view that Mr Pinto lacks honesty and integrity. The

Authority considers that Mr Pinto intentionally breached Section 3.4.5 on
23 October 2013 and, as a result of this, Mr Pinto lacks honesty and integrity. The
Authority takes the view that the deliberate breach of a rule is incompatible with
acting with integrity and that, further, a person breaking a rule for reasons of
personal financial gain and/or pressure from external sources raises concerns as
to that person’s integrity.

34. The Authority is also of the view that Mr Pinto lacks competence and capability as

he was unable to state any of the standards expected of approved persons during
interview.

35. As a result of these concerns in relation to Mr Pinto’s honesty and integrity, and

competence and capability, the Authority considers that Mr Pinto is not fit and
proper to perform the function to which the application relates.

IMPORTANT NOTICES

36. This Final Notice is given under section 390 (1) of the Act

37. Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this Final Notice relates. Under those
provisions, the Authority must publish such information about the matter to which
this Final Notice relates as the Authority considers appropriate. The information
may be published in such manner as the Authority considers appropriate.
However, the Authority may not publish information if such publication would, in
the opinion of the Authority, be unfair to [name of firm] or [name of candidate]
or prejudicial to the interests of consumers or detrimental to the stability of the
UK financial system.

38. The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

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Authority contacts

39. For more information concerning this matter generally, contact Pat Knox, Senior

Manager, Approved Persons, Passporting and Mutuals Department at the
Authority (direct line: 020 7066 4868 / email: pat.knox@fca.org.uk).

Susan de Mont
Chair of the Regulatory Transactions Committee

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ANNEX A – REGULATORY PROVISIONS RELEVANT TO THIS FINAL NOTICE

1. The Authority may grant an application for approval under section 60 of the Act

only if it is satisfied that the person in respect of whom the application is made is
a fit and proper person to perform the controlled function to which the application
relates (section 61(1) of the Act).

2. Section 61(5) of the Act allows a person who makes an application under section

60 of the Act to withdraw the application, but only with the consent of the
candidate.

3. Section 62(5) of the Act defined ‘interested parties’ as including the applicant,

and the person in respect of whom the application is made.

4. Section.390 (1) of the Act requires the Authority, if the matter was not referred

to the Tribunal within the time required by the Tribunal Procedure Rules, to issue
a Final Notice.

Relevant provisions of the Authority’s Handbook

5. The Fit and Proper test for Approved Persons (“FIT”) sets out the criteria that the

Authority will consider when assessing the fitness and propriety of a person to
perform a particular controlled function.

6. The most important considerations to which the Authority will have regard include

the person’s honesty and integrity and competence and capability (FIT 1.3.1G).

7. If a matter comes to the Authority’s attention which suggests that the person

might not be fit and proper, the Authority will take into account how relevant and
important that matter is (FIT 1.3.4G).

8. In determining a person’s honesty, integrity and reputation, the matters to which

the Authority will have regard include:

(1)
whether the person has contravened any of the requirements and standards
of the regulatory system or the equivalent standards or requirements of
other regulatory authorities (including a previous regulator), clearing houses
and exchanges, professional bodies, or government bodies or agencies (FIT
2.1.3G (5));

9. In determining a person’s competence and capability, the matters to which the

Authority will have regard include:

(1)
whether the person satisfies the relevant Authority training and competence
requirements in relation to the controlled function the person performs or is
intended to perform (FIT 2.2.1G (1)).