This report summarizes selected material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to a be a comprehensive review of each and every notice issued by these Exchanges.
This month CME Group announced that it will launch a physically delivered crude oil storage futures contract, the first-ever of its kind, in reaction to extremely high levels of stockpiles of crude oil available nationwide and the demand for storage capacity. The futures contract—LOOP Crude Oil Storage Futures—will represent the right to store 1,000 barrels of crude at LOOP LLC’s Clovelly Hub in Louisiana. LOOP LLC is the operator of the largest privately-owned crude oil terminal in the United States. On March 30, 2015, pending all regulatory review periods, NYMEX will implement new Rule 710 into Chapter 7 of the Rulebook to incorporate certain conditions and requirements with which the LOOP facility must comply in its capacity as the operator of the delivery location for the LOOP Crude Oil Storage Futures contract.
CME Group hopes that the new storage contract will enhance liquidity in other crude oil futures contracts and will help customers manage crude oil storage price risk. The contract will begin trading on March 29, 2015 for trade date March 30, 2015, pending relevant Commodity Futures Trading Commission (CFTC) regulatory review. The contract specs can be found here: http://www.cmegroup.com/trading/energy/crude-oil/loop-crude-oil-storage_contract_specifications.html. CME Group has also created a fact card for the new contract, which can be found here:http://www.cmegroup.com/trading/energy/files/loop-storage-futures-wdm-fact-card.pdf.
Rule Changes and Other Advisory Notices
CME GROUP- MARKET SURVEILLANCE UPDATE- MSN03-24-15
On July 7, 2015, pending all regulatory review periods, NYMEX and COMEX will amend Chapter 7 of the Exchanges’ Rulebook to implement fee caps for storage and delivery out charges for precious metals stored at Exchanges-approved depositories.
CME GROUP- MARKET REGULATION ADVISORY NOTICE: SUMMARY FINES FOR REPORTING INFRACTIONS RA1503-5
This notice supersedes Notice RA1307-5 from July 17, 2013. It advises of an upcoming amendment to Rule 512-Reporting Infractions, which will imbed a minimum summary fine of $1,000 for inaccurate, incomplete, or untimely submission of data or records to the Exchanges or to CME Clearing.
CME GROUP- MARKET SURVEILLANCE UPDATE- MSN03-24-15A
On April 8, 2015, pending all regulatory review periods, NYMEX and COMEX will amend Chapter 7 of the Exchange’s Rulebook to revise the requirements for approval of producers of gold deliverable against all physically delivered gold contracts listed on COMEX.
LARGE TRADER REQUIREMENTS- LISTING OF SEVEN (7) NEW MINI PETROLEUM FUTURES CONTRACTS
In connection with the listing of seven new mini petroleum futures contracts, this notice provides the corresponding spot-month limits, single month and all month accountability levels, and the reportable levels for these new contracts. On March 9, 2015, all of the terms of conditions listed in this notice were inserted into the official NYMEX Table located in Chapter 5 of the NYMEX Rulebook.
LARGE TRADER REQUIREMENTS-LISTING OF TWO (2) PETROCHEMICAL FUTURES CONTRACTS
In connection with the listing of two new petrochemical futures contracts, this notice provides the corresponding spot-month limits, single month and all month accountability levels, and the reportable levels for these new contracts. On March 9, 2015, all of the terms of conditions listed in this notice were inserted into the official NYMEX Table located in Chapter 5 of the NYMEX Rulebook.
LARGE TRADER REQUIREMENTS-LISTING OF TWO (2) NY BUCKEYE JET FUEL (PLATTS) FUTURES CONTRACTS
This notice provides the relevant aggregation allocations, spot-month position limits, single month and all month accountability levels, and reportable levels, for the new NY Buckeye Jet Fuel (PLATTS) Futures contracts which are launching on March 23, 2015. These new requirements were inserted into the relevant NYMEX table in Chapter 5 of the Rulebook.
NYMEX and COMEX MARKET REGULATION ADVISORY NOTICE RA1504-4-BLOCK TRADES
Pending regulatory review, NYMEX will begin to permit block trading in 9 new products concurrent with the launch of trading in the new products on March 29, 2015, including various coal and crude oil products. Additionally, Section 11 of the advisory notice on Block Trades is being edited to change “affiliated parties” with the language “different accounts with common beneficial ownership” in order to align the wording with the current Market Regulation Advisory Notice on Rule 534 (“Wash Trades Prohibited”).
CME and CBOT MARKET REGULATION ADVISORY NOTICE RA1502-3-BLOCK TRADES
This advisory notice supersedes Market Regulation Advisory Notice RA1501-3 from January 6, 2015. Pending regulatory review, minor changes will be made to Section 11 of the advisory notice, to change references to “affiliated parties” with “different accounts with common beneficial ownership.” This change, similar to the one noted above in RA1504-4, is being made in order to align the wording with the current advisory notice on Wash Trades.
SEF NOTICE: REVISED ERROR TRADE POLICY
Effective April 6, 2014, ICE Swap Trade will have a new Error Trade Policy.
CME GROUP- NYMEX and COMEX MARKET REGULATION ADVISORY NOTICE RA1505-4
This notice supersedes Market Regulation Advisory Notice RA1504-4 from March 16, 2015. Concurrent with the launch of trading in certain new products on April 12, 2015, NYMEX will begin to permit block trading in Singapore Fuel Oil 180cst (Platts) Brent Crack Spread (1000mt) Futures and the Fuel Oil 380cst (Platts) Brent Crack Spread (1000mt) Futures.
ICE Futures Europe (Rule Changes and Other Advisory Notices)
ICE FUTURES EUROPE CIRCULAR 15/036 and ATTACHMENTS
This circular advises of proposed changes to the Rules to remove (or amend to reflect the Low Sulphur Gasoil product) all references to the Ice Futures Gasoil Futures contract, the ICE Futures Gasoil Options contract, and any other reference to the Gasoil contract that represented a heating oil product containing 1,000 parts per million sulphur. The proposed change went into effect on March 17, 2015.
ICE FUTURES EUROPE CIRCULAR 15/051 & ATTACHMENT- AMENDMENT TO CESSATION OF TRADING, RULE SECTION V
This proposed Amendment to Section V takes into account a revision to the publication date of the December Indices against which contracts are settled when the following January 1st is a Friday. Specifically, it adds the following to V.1(a)- “In the case of a December contract where the succeeding January 1st is a Friday, trading shall cease on the preceding Business Day.”
ICE FUTURES EUROPE CIRCULAR 15/044- HOW THE ICE MARKET WORKS
ICE has published a document called “How the ICE Market Works,” a high-level document that describes various aspects of ICE Futures trading around the globe. The document is available on the ICE Community webpage.
ICE FUTURES EUROPE CIRCULAR 15/055- INTRODUCTION of BUTTERFLY AND CONDOR SPREAD STRATEGIES FOR ENERGY FUTURES EUROPE CONTRACTS
ICE Futures Europe is introducing Butterfly and Condor strategies for Energy futures contracts. A Butterfly spread is the simultaneous purchase and sale of two spreads in which the price represents the difference in value of the two spreads and where the middle month is common to both the front and back spread. A Condor spread is the simultaneous purchase and sale of two spreads in which the price represents the difference in value of the two spreads, such that the two spreads represent four different months. See Circular 15/068, below, for note on postponement of implementation.
ICE FUTURES EUROPE CIRCULAR 15/068-UPDATE
ICE Futures Europe is postponing the introduction of the Butterfly and Condor spread strategies previously announced in Circular 15/055 to allow for the incorporation of customer feedback into the rollout of this functionality.
ICE FUTURES EUROPE CIRCULAR 15/037
This circular advises that, effective immediately, the availability of Stop Limit Orders and Stop with Protection Orders will be increased to cover all outright months and calendar spreads for the following contracts: ICE Brent Futures, ICE WTI Futures, ICE Low Sulphur Gasoil Futures, ICE UK Natural Gas Futures.
ICE FUTURES EUROPE CIRCULAR 15/074 & ATTACHMENTS
This notice provides the position limits and accountability levels that will apply to the nine futures contracts ICE Futures Europe previously announced in Circular 15/049 from March 13, 2015.
Deutsche Bank AG
Lack of Documentation
Violation of Rule 4.06(b)(v)- Exchange for Related Position. Allegedly, Deutsche Bank did not maintain confirmation statements to substantiate the related physical trade of EFRP transactions on numerous occasions from September 2011 through December 2013. $650,000 fine and cease and desist.
IVG Energy Ltd
Lack of Documentation; Block Trades
Violation of Rule 4.07(c)-Block Trading, Rule 6.07(b)- General Record Requirements, Rule 6.08(b)(i)-Order Ticket Requirements, and Rule 4.01-Duty to Supervise. Allegedly, in several instances, IVG Energy misreported the execution time of block trades in the Exchange’s natural gas and power contracts and failed to prepare and maintain records associated with such transactions. $40,000 penalty and cease and desist.
Trevor Giles, trading as Liger Investments Ltd
Violation of Rule 4.01-Duty to Supervise and Rule 4.02(I)(2)- Trade Practice Violations. Allegedly, Liger operated an automated trading system that malfunctioned, due to an undetected software bug, causing numerous order messages to enter the market not in good faith for the purpose of entering a bona fide transaction. Also, Liger allegedly failed to identify the ATS’s software bug prior to its live deployment in the market. $25,000 penalty and cease and desist.
Lack of Documentation
Violation of Rule 4.06(b)(v)- Exchange for Related Position. On numerous occasions from September 2011 through December 2013, Kierans allegedly failed to maintain confirmation statements to substantiate the related physical trade his Currency Exchange for Physical transactions. $10,000 fine and cease and desist.
Citadel Securities LLC- CME 13-9526-BC
Violation of Rule 432- General Offenses. During an approximately one-minute period on June 3, 2013, Citadel allegedly entered a series of unintentional orders on Globex electronic trading platform, because of a software malfunction in a server Citadel used to route orders to the Exchange. The atypical short-term increase in trading volume resulting from the error impacted the price in the E-mini S&P Futures market. $70,000 fine.
Adam Cobb-Webb CME 14-9844-BC
Violation of Rule 432- General Offenses and Rule 534- Wash Trades. Allegedly, between April 3, 2014, and April 15, 2014, Webb prearranged the execution of numerous round-turn transactions for the purpose of transferring funds between two accounts. The Panel also found that Webb was the beneficial owner of the two accounts, and that Webb entered the buy and sell orders with the knowledge and intent that the orders would match opposite one another. $5,000 fine (taking into account Webb’s financial condition) and 30 business day suspension.
Joseph Connolly and Wayne Friedman CME 13-9561-BC, BC-2
Pre-Arranged Trades; Misc.
Violation of Rule 521-Requirements for Open Outcry Trades, Rule 539-Prearranged, Pre-negotiated and Noncompetitive Trades Prohibited, and Violation of Rule 529- Withholding Orders Prohibited. Allegedly, on April 9, 2013, Connolly withheld portions of customer orders for the benefit of obtaining fills on subsequent orders placed by the same customer. Specifically, a customer entered orders to buy 6,500 contracts and sell 12,500 contracts for a spread trade in the Eurodollar options on futures pit. Connolly instructed a broker in his group to execute 6,000 contracts in the pit and 6,500 contracts with another broker in the group. No visible trade for the 6,500 occurred between the brokers in Connolly’s group. Subsequently, the same customer entered orders for an additional 10,000 contracts on the buy side and 5,000 contracts on the sell side. Again, Connolly withheld portions of the orders, as he only instructed the broker handling the buy order to purchase 8,000 contracts. The remaining 2,000 contracts were carded up between brokers within the group, despite no visible trade having occurred. Friedman was involved by allegedly executing a portion of customer orders that was not bid openly and competitively in the pit. $10,000 fine and 5 business day suspension (Connolly) and $15,000 fine and 25 business day suspension (Friedman).
Thomas Hessling and Charles Levin CME 13-9561-BC-3, BC-4
Pre-Arranged Trades; Misc.
Violation of Rule 529- Withholding Orders Prohibited, Violation of Rule 521-Requirements for Open Outcry and Rule 539-Prearranged, Pre-negotiated and Noncompetitive Trades Prohibited. Allegedly, on August 7, 2013 Hessling withheld portions of a customer order for the benefit of obtaining a fill on a subsequent order placed by the same customer. Specifically, a customer entered consecutive orders to buy 10,000 contracts and sell 8,000 contracts in a single strike price in the Eurodollar options on futures pit. Hessling received both orders and initially instructed a broker in his group to work 2,000 contracts on the order. After that quantity had been executed, Hessling told the broker that the buy order was actually for 10,000 contracts. The broker immediately executed the balance of 8,000 contracts on the buy side opposite another broker from his group in the pit without openly bidding in the pit. Levin executed a portion of a customer order that was not bid openly and competitively in the pit. $15,000 fine and 25 business day suspension (Hessling) and $20,000 fine and 10 business day suspension (Levin).
Mitchell Zale CME 13-9561-BC-5
Pre-arranged Trades; Misc.
Violation of Rule 521- Requirements for Open Outcry and Rule 539- Prearranged, Pre-negotiated and Noncompetitive Trades Prohibited. On April 9, 2013, Zale allegedly executed a portion of customer orders that was not bid openly and competitively in the pit. Also, on August 7, 2013, Zale again executed a portion of customer orders that was not bid openly and competitively in the pit. See more detailed description of facts above under Joseph Connolly and Thomas Hessling disciplinary action summaries. $25,000 fine and 15 business day suspension.
Daniel Masters- NYMEX 13-9584-BC
Violation of Rule 432- General Offenses. Between August 19, 2013 and August 22, 2013, Masters allegedly pre-arranged and executed round turn transactions in Crude Oil, Natural Gas, Platinum and Palladium on the CME Globex platform which resulted in the transfer of money from a second account to an account owned by Masters. $35,000 fine total in conjunction with COMEX disciplinary action ($20,000 allocated to NYMEX) and 10 business day suspension.
Jordan Meisner- NYMEX 13-9614-BC
Violation of Rule 432- General Offenses and Market Regulation Advisory Notice RA1304-5 (“Improper Conduct with Respect to User-Defined Spreads on CME Globex”). From August 2013 to February 3014, Meisner allegedly entered 1-lot orders in multiple user-defined covered options instruments which resulted in the under allocation of futures contracts that should have been associated with the covered options instrument. $40,000 fine.
EOX Holdings LLC- NYMEX 11-8649-BC
Lack of Documentation; Block Trades
Violation of Rule 536-Recordkeeping Requirements for Pit, Globex, and Negotiated Trades and Rule 538-Exchange for Related Positions. Allegedly, between July 2011 and November 2011, EOX executed 8 EFRP transactions for customers and mistakenly reported such transactions as block trades. Further, EOX allegedly failed to maintain accurate written or electronic records of the EFRP transactions. $40,000 fine.
Newedge USA LLC and Sipi Metals Corporation- NYMEX 14-0038-BC-1, BC-2
Lack of Documentation
Violation of Rule 538.H-Documentation. Allegedly, on March 17, 2014, a Newedge employee trading accounts for a Newedge affiliate, entered into an EFRP transaction which did not contain documentation of the related physical transaction and was therefore not a bona fide EFRP transaction. $15,000 fine (Newedge) and $7,500 fine (Sipi).
Jaypee International Inc. and Varun Choudhary- NYMEX 10-7618-BC-1, BC-2
Pre-arranged Trades; Misc.
Violation of Rule 534- Wash Trades. From July 2010 through March 2011, employees of Jaypee allegedly executed a series of wash trades between Jaypee accounts in order to liquidate concurrent long and short positions and thereby avoid delivery, or to transfer positions between accounts to avoid posting margin. Jaypee failed to diligently supervise its traders in a manner sufficient to ensure that they were familiar with Exchange rules such as through appropriate compliance training. Choudhary was the employee alleged to have executed the trades. $40,000 fine (Jaypee) and $5,000 (Choudhary).
Daniel Masters- COMEX 13-9584-BC
See NYMEX 13-9584-BC, above. $35,000 fine ($15,000 allocated to COMEX) and 10 business day suspension.
Michel Simonian- COMEX 13-9598-BC
Violation of Rule 432- General Offenses. Between March 2013 and January 2014, Simonian allegedly engaged in a pattern of activity in which he entered large manual orders in the Silver futures contract without the intent to trade. He entered these orders, allegedly, to observe the market’s reaction and to encourage market participants to trade opposite his smaller iceberg orders that were resting on the opposite side of the book. After the iceberg orders were filled, Simonian would cancel the resting large orders he had entered on the opposite side of the order book, within approximately one second. $35,000 fine and 15 business day suspension.
Jaypee International Inc. and Varun Choudhary- COMEX 14-0029-BC-1, BC-2
Violation of Rule 432-General Offenses and Rule 534-Wash Trades Prohibited. See NYMEX 10-7618-BC1-2 above for more details. $40,000 fine (Jaypee) and $5,000 fine and 5 business day suspension (Choudhary).
John Yavari- CBOT 11-8448-BC
Violation of Rule 521- Trading Practices. Allegedly, on one or more occasions during October 2010, Yavari did not openly and competitively bid or offer for trades made from his personal account in the Corn futures pit. As a result, Yavari realized a $787.50 profit. $10,000 fine, $787.50 disgorgement and 5 business day suspension.
Other Issues to Note
CFTC ORDERS ICE FUTURES U.S. TO PAY $3 MILLION CIVIL MONETARY PENALTY
On March 16, 2015, the CFTC announced that it had settled charges against ICE Futures U.S. for submitting inaccurate and incomplete reports and data to the CFTC from October 2012 through at least May 2014. Examples of the inaccurate and incomplete reports and data include incorrect clearing member reports, permanent record data (trading volume, open contracts, prices, critical dates), and transaction-level trade data. The terms of the settlement require ICE to pay a $3 million dollar civil monetary penalty and to undertake improvements to its regulatory reporting data-reconciliation efforts. CFTC press release available here: http://www.cftc.gov/PressRoom/PressReleases/pr7136-15.
NEW PRODUCT LISTINGS
On March 30, 2015, ICE Futures U.S. will list new Financial Natural Gas, Financial Power and Physical Environmental futures and options contracts Also, ICE will introduce 42 new energy contracts for trading on ICE Futures Europe or ICE Futures U.S. The new contracts include futures and option in cash settled oil, wet freight, U.S. natural gas, power, and physical contracts.
On March 30, 2015, pending all regulatory review periods, NYMEX will list two Short Dated Coal Option contracts and six Asia Coal Option contracts.