CME Group and ICE Futures U.S. sanctioned a number of traders for documentation issues related to exchange for related position (EFRP) transactions and for transferring positions among affiliated accounts through wash trades. In one transaction, CME Group fined EOX Holdings LLC US $40,000 for executing eight EFRP transactions between July and November 2011 and incorrectly reporting them as block trades. The firm also allegedly failed to maintain required records to support such transactions. Similarly, Newedge USA, LLC and SIPI Metals Corporation were fined US $15,000 and $7,500, respectively, by CME Group, for lacking documentation of the related cash leg of an EFRP transaction on March 17, 2014, while John Kierans was fined US $10,000 by ICE Futures U.S. for entering into “numerous” EFRP transactions involving foreign exchange from September 2011 through December 2013 without maintaining “confirmation statements to substantiate the related physical trades.” In addition, Jaypee International, Inc. and Varun Choudhary, a trader for Jaypee, were sanctioned in aggregate US $90,000 for a number of wash trades on the Commodity Exchange, Inc. and New York Mercantile Exchange Inc. between Jaypee accounts from July 2010 through March 2011 in order to liquidate concurrent long and short positions and avoid delivery. In connection with Jaypee’s Nymex transactions, Mr. Choudhary also was suspended from trading all CME Group products for five business days. Each of the respondents voluntarily agreed to their sanctions without admitting or denying any facts or rule violations.
Compliance Weeds: In both the CFTC’s enforcement action against Kraft Foods Group and Mondelez Global filed last week, as well as the Jaypee International disciplinary action discussed in this article, companies appear to have tried to transfer positions between commonly owned accounts through impermissible non-competitive transactions. However, designated contract markets—such as the exchanges of CME Group and ICE Futures U.S.—have express provisions permitting transfers of positions between accounts with the same beneficial ownership subject to certain conditions (e.g., the trades may only be transferred at certain prices) and restrictions on when otherwise offsetting transferred positions may be liquidated outside the market. (Click here, to access CME Group’s Rule 853 regarding transfer trades, and here, to access IFUS’s Rule 4.11 regarding transfer trades.)