The CME Group is proposing to update a market regulatory advisory notice that addresses wash trades (last issued in November 2013) to make clear that block trades between accounts with identical ownership or accounts of wholly-owned affiliates with the identical owner—accounts deemed to be with the same beneficial owner—are prohibited. The revised MRAN also cautions against engaging in wash trades to freshen position dates in physically delivered futures contracts (see story below entitled “CME Freshens Rule Prohibiting Cattle Futures Freshening”) and reflects changes in the CME Group’s self-match prevention (SMP) functionality on CME Globex being rolled out by January 11, 2015. Currently, the applicable wash trades MRAN states that block trades between accounts with the same beneficial owner and accounts with common beneficial ownership that is less than 100% are prohibited unless each account’s decision to enter into the transaction is made by an independent decision maker, is the result of a “legal and bona fide business purpose,” and the block trade is executed at a “fair and reasonable price.” The proposed revised MRAN will permit block trades meeting these requirements among commonly owned accounts, but only if the amount of beneficial ownership is less than 100%. Separately, CME Group’s SMP functionality, when used, prevents the matching of buy and sell orders for commonly owned accounts. By January 11, 2015, CME Group is enhancing its SMP functionality to permit customers to determine whether a resting or new order should be cancelled in the case of a self-match. The CME Group’s revised wash trades MRAN is scheduled to be effective January 2, 2015. (Click here for further details in the article “CME Issues Revisions to Wash Trade Advisory Notice,” in the December 19, 2014 edition of Corporate and Financial Weekly Digest by Katten Muchin Rosenman LLP.)

Compliance Weeds: Even within the CME Group, there is a difference in permissible transactions between affiliates in the case of block trades and exchange of futures for related positions. As clarified by the CME Group’s new wash trades MRAN, block trades between accounts with the same beneficial owner are now always prohibited (CME Group staff states this always has been the case). However, EFRP trades between independently controlled accounts with common beneficial owners (i.e., the same beneficial owner orwhere the amount of beneficial ownership is less than 100%) are permitted, as well as between independently controlled accounts within the same legal entity—provided the accounts are in separate business units (click here for the relevant CME Group MRAN regarding EFRPs). ICE Futures U.S., on the other hand, permits block trades between accounts of affiliated persons—without regard apparently to the percentage of ownership—provided that the block trade is executed at a “fair and reasonable price,” that each party has a “separate and independent bona fide business purpose for engaging in the trades” and that the transactions are undertaken by a “separate and independent decision-maker.”