Cargill Incorporated agreed to settle a disciplinary action brought by ICE Futures U.S. related to its alleged failure to expose multiple futures orders to the market for at least five seconds prior to crossing them on the exchange’s electronic trading system against other orders following pre-trade communications. This requirement existed under a predecessor to IFUS’s current rule dealing with crossing trades (click here to access now withdrawn ICE Futures Rule 27.22). To settle this matter, Cargill agreed to pay a fine of US $300,000 and to comply with IFUS’s pre-execution communication procedures going forward. Separately, Golden Triangle Storage & Hub LLC and Jefferson Island Storage & Hub LLC each agreed to pay a fine of US $7,500 to IFUS in connection with buy and sell orders placed by a single person with discretion to trade for both firms for the alleged purpose of transferring positions from one firm to the other.
Compliance Weeds: Where there is a pre-trade communication to facilitate an IFUS futures or options trade on the exchange’s electronic trading system, both the buy and sell orders must be entered into the ETS and designated as a crossing order. At that point, a request for quote will be triggered for five seconds. Afterwards the trades may be crossed automatically by the ETS subject to various conditions. (Click here to access IFUS Rule 4.02(k) and here to access IFUS’s January 2015 Pre-Execution Communications FAQs.) Customers must always consent to their orders being shopped and the parties to pre-trade communications may not disclose the details of their communications to other parties. CME Group has some similar requirements and processes, although there are some important differences, and not all of its contracts available on Globex are eligible for pre-execution communications. (Click here to access CME Rule 539 and here to access CME Group MRAN RA1410-5 (December 15, 2014)). Pre-trade communication rules must be carefully reviewed exchange by exchange to ensure compliance. Crossing trades in violation of exchange rules potentially also violates the Commodity Futures Trading Commission’s prohibition against non-competitive trades. (Click here to access CFTC Rule 1.38(a).)