INTL FCStone Financial, Inc., a clearing member of the Chicago Mercantile Exchange, agreed to pay a fine of US $40,000 to resolve charges that, during 2014, it failed to maintain complete audit trail data containing all mandatory fields, as required, for five years. According to CME Group Rules, clearing members that guarantee connections to Globex are obligated to maintain or cause to be maintained such audit trail data, except where the direct connect client is another clearing firm or an equity member firm. In such circumstances, subject to conditions, the other clearing member or equity member firm is required to maintain the audit trail data. CME also had charged INTL FCStone with certifying to it that it had maintained or caused to be maintained required audit trail data, when the certification was incorrect. Separately, Merrill Lynch Commodities agreed to pay a fine of US $35,000 to the Chicago Board of Trade and disgorge profits of US $124 for allegedly exceeding spot month position limits in Soybean futures contracts for one day in February 2017. CBOT said this was the firm’s third position limit violation in five months. Similarly, E. Davison Massey agreed to pay a sanction of US $30,000 to the CBOT and be suspended from trading on all CME Group markets for 10 days for also violating spot month position limits for Soybean Oil futures contracts on one date in November 2016. Finally, Carter Ohrt settled a CBOT enforcement action for alleged spoofing-type conduct by consenting to pay a fine of US $60,000, disgorging profits of US $32,300, and serving a 120-trading-day suspension from all CME Group markets. The CBOT alleged that, on various days from March 2014 through October 2014, Mr. Ohrt placed multiple larger orders on one side of the market in various commodities, and a single small lot order on the opposite side. When the smaller order was executed, Mr. Ohrt purportedly cancelled the larger orders. CBOT said, “the effect of this strategy was to induce other market participants to trade opposite the small resting orders.”

Compliance Weeds: Under CME Group rules, clearing members have rigorous recordkeeping obligations in connection with the audit trails of direct access clients for which they guarantee connection to Globex. (Click here to access CME Group Rule 536.B.) CME Group recently proposed making clearing members strictly liable for the accuracy of a large number of mandatory fields of such audit trails by their direct access clients. However, CME Group backed down from imposing such a potentially onerous requirement and solely mandated that clearing members take “appropriate action” for a direct access client’s input of each mandatory audit trail field “if it has actual or constructive knowledge that a non-member has failed to accurately input” mandatory audit trail fields. (Click here for background in the article “FCM Broad Strict Liability Globex Audit Trail Rule Amendment Revised to a Known or Should Have Known Standard by CME Group” in the June 4, 2017 edition of Bridging the Week.)