CME Group resolved eight disciplinary actions involving alleged violations of its exchange for related position requirements by assessment of aggregate fines totaling US $174,500. In many of the actions, the alleged violation involved only one transaction; for these matters, the defendant was assessed a fine of US $15,000. Six of the actions were against non-members, while only two involved members. In most of the matters, the defendant was charged with entering into an EFRP without a bona fide transaction involving a transfer of a related position (e.g., transfer of a cash commodity). Separately, ICE Futures U.S. agreed to resolve allegations against an individual for alleged spoofing-type conduct by his disgorgement of trading profits of approximately US $8,000 and a fine of approximately US $82,000. According to IFUS, the defendant engaged in a pattern of trading from March 2015 to May 2015 in Coffee “C” futures, where he would place small orders on one side of the market and large orders on the other side. On numerous occasions, claimed IFUS, “the small order transacted and [the respondent] would cancel the larger order on the opposite side of the market.” The defendant also agreed to a 10-day IFUS trading suspension to resolve this matter.
Compliance Weeds: In connection with EFRPs, one party must sell the exchange contract and buy approximately the same quantity of the related position (or the market exposure associated with the related position), while the other party must buy the exchange contract and sell the same approximate quantity of the related position or associated market exposure. The related position must be the cash commodity associated with the exchange contract or a by-product, a related product or an over-the-counter derivative instrument of such commodity that is reasonably correlated to the exchange contract. EFRPs must result in a real transfer of a cash commodity between the parties or a legal binding agreement between the parties governing the related position consistent with prevailing market conventions. (Click here for CME Group guidance regarding EFRPs, here for ICE Futures U.S. guidance, and here for CBOE Futures Exchange guidance.)