The CME Group settled two disciplinary actions for position limit violations by ordering payment of a fine and disgorgement. In one action, against William Kruse, the respondent agreed to pay a fine of US $25,000 and disgorge profits of US $39,897 for initially violating the spot month position limit in feeder cattle futures contracts on August 22, 2014, and inadvertently increasing his position the next business day (August 25) before realizing his limit violation and reducing his position to an acceptable level on August 25. Similarly, Joshua Kirley agreed to pay a fine of US $20,000 and disgorge profits of US $4,364 for violating spot month position limits in corn futures contracts on November 30, 2o12, although he liquidated sufficient positions to come into compliance with the position limits on the same business day. In an unrelated action, the Chicago Board of Trade agreed to settle a disciplinary action with Best Eagle Trading Ltd. because one of its employees allegedly engaged in wash trades involving soybean futures contracts to transfer positions between two firm accounts. The transactions occurred on “numerous occasions” between July 23 and September 27, 2012. To resolve this matter, Best Eagle agreed to pay a fine of US $60,000.
Compliance Weeds: Two lessons learned: If a firm seeks to transfer trades between accounts of the same beneficial ownership, use the designated contract market’s transfer trade provisions. Do not use wash trades or exchange for related position transactions. (Click here to access, e.g., CME Rule 853 and here to access ICE Futures U.S. Rule 4.11 regarding transfer trades.) Likewise, keep in mind it doesn’t matter how long a position limit violation occurs. Even less than 12 minutes is sufficient for a violation. (Click here for more details regarding this reference in the article “FC Stone Companies and Goldman Sachs Receive Largest Fines in CME Group’s 27 Disciplinary Actions Cascade” in the July 26, 2015 edition of Bridging the Week.)