ICE Futures U.S. filed and settled charges against James Shrewsbury claiming that, on multiple occasions from November 2014 to March 2015, he may have engaged in trading practices that constituted spoofing and disruptive trading in violation of exchange rules. IFUS alleged that, during the relevant time, Mr. Shrewsbury engaged in a “pattern of activity” where he would enter an iceberg order at the best bid or offer. He would then enter a large fully displayed order on the opposite side of the market that “appeared to create artificial pressure and appeared to mislead market participants into trading opposite the pre-positioned iceberg order,” alleged IFUS. IFUS claimed that Mr. Shrewsbury would then cancel his large order within seconds of his iceberg order being executed. To resolve this matter, Mr. Shrewsbury agreed to pay a fine of US $139,850 and to disgorge profits of US $69,850. He also agreed to a 10-day suspension from access to all IFUS trading platforms. Separately, Cornerstone Global Commodities, a Commodity Futures Trading Commission-registered introducing broker, agreed to pay a fine of US $40,000 to resolve IFUS charges that it may have mishandled customer orders and block trades “in multiple instances.” According to IFUS, Cornerstone may not have complied with recordkeeping requirements related to customer orders; may have misreported the correct execution time of block trades; and may have submitted block trades beyond IFUS’s 15-minute reporting deadline. In addition, said IFUS, in one instance, the firm may also have improperly disclosed a customer’s identity while negotiating a potential block trade, and may not have fully cooperated with IFUS’s investigation. Finally, Glencore Grain BV agreed to pay a fine of US $200,000 to settle charges by IFUS that, on one day, it may have violated position limits in the July 2014 Cotton No. 2 futures contract. In addition, alleged IFUS, the firm may have caused “price movement” in the relevant futures contract and a corresponding July/December 2014 futures spread when, in response to a request by IFUS to reduce positions, the firm “waited until the final 20 minutes of trading to execute a high proportion of their transactions on the day prior to first notice day.”

Compliance Weeds: From perusing ICE Futures U.S.’s Disciplinary Notice related to Glencore Grain’s settlement it is hard to fully understand the facts underlying the firm’s alleged wrongdoing. However, the allegations of wrongdoing reminded me that there are actually two important elements of bona fide hedging transactions: First, the hedging transactions or positions ordinarily represent a substitute for transactions to be made or positions to be taken in the future and are economically appropriate for the risk in the conduct and management of a commercial enterprise. Second, hedge positions must be ”established and liquidated in an orderly manner “ consistent “with sound commercial practices.” Both legs must be met; it’s not either or. (Click here for details in the CFTC’s definition of bona fide hedging transactions in CFTC Regulation 1.3(z).)