7th Circuit Court of Appeals
Case Name: Jacob Daneshrad v. Trean Group, LLC
Case No.: 22-1421
Officials: Easterbrook, Kirsch, and Lee, Circuit Judges.
Focus: Securities – Margin Call
Several affiliated traders set up four accounts with Trean Group, an introducing broker at the Chicago Mercantile Exchange. An introducing broker manages the customer side of the futures-trading business. The trading side is the province of a futures commission merchant, which for these traders was FCStone (a part of what is now called StoneX Group, Inc.). On the traders’ behalf, Trean and Stone bought and sold futures contracts on the Standard & Poor’s 500 Index. The traders wanted to engage in naked trading—that is, to speculate rather than hedge—and Stone set a high margin accordingly. (In the futures business, margin is money on deposit for the security of the broker and merchant, should the market price move against the trader and the trader fail to cover the loss; this differs from the meaning of margin in securities trading.) Stone, as the futures commission merchant, was a principal in all trades and together with the clearing house bore the immediate economic risk; Trean, as the introducing broker, guaranteed Stone’s positions and shared in its commissions. The traders were liable to Stone and Trean, but not to the counterparties on the futures contracts. Regardless of whether Trean was entitled to end its dealings with the traders, no reasonable jury could find that Trean injured them. Trean’s decision did not affect the value of their futures contracts; they did not have a greater loss than they would have by moving their accounts to a different introducing broker and retaining Stone.