CME Group exchanges brought and settled multiple disciplinary actions alleging disruptive practices, wash trades, and position limit violations.
Timothy Roach, a Chicago Board of Trade member, resolved a disciplinary action by the exchange by agreeing to pay a fine of US $90,000, disgorging profits of over US $11,000 and serving a 30-day all CME Group exchanges’ access prohibition for purportedly engaging in three types of disruptive trading practices from February 1, 2016, through May 3, 2017.
On some occasions, said CBOT, Mr. Roach entered multiple layered orders on one side of the soybean futures market to induce execution of a smaller order on the other side. As soon as he obtained execution of the smaller order, he cancelled his opposite side orders. On other occasions, claimed CBOT, Mr. Roach entered orders on one side of the market at the best bid/offer, and as other traders joined his resting orders, he used self-match prevention software to cancel his resting orders and to trade opposite the other resting orders. Finally, on one occasion, Mr. Roach modified the price of a pending iceberg order to trigger SMP software to cancel various layered orders he had placed on the other side of the market which also had attracted other traders’ interest.
Separately, Transmarket Bulwark LLC and its employee, Josh Matalon, settled charges filed by the New York Mercantile Exchange that Mr. Matalon entered into user-defined spreads to avoid the allocation of futures contracts that should have been associated with the covered options’ instruments. To resolve these matters, Transmarket agreed to disgorge profits of US $18,430, while Mr. Matalon consented to pay a fine of US $25,000.
Unrelatedly, Gregory Kofford agreed to pay a fine of US $25,000 to the CBOT and serve a 15-business-day all CME Group exchanges’ trading prohibition for matching buy and sell orders of accounts for the same beneficial ownership in US Treasury Bond and corn options markets. The CBOT also claimed that, for half of his orders, he used a Tag 50 identification other than his own, contrary to the exchange’s requirements (click here to access CBOT Rule 576).
Kaushik Tikaria and Ashish Shah also settled Commodity Exchange, Inc. disciplinary actions for engaging in prohibited wash and prearranged trades. According to Comex, from February 11, 2016, through July 14, 2016, each individual engaged in trades between two proprietary accounts with common beneficial ownership with the intent that such trades should match, as well as trades for accounts with different beneficial ownership where the opposite sides were entered within approximately one second; the exchange claimed these were prohibited prearranged trades. To resolve these matters, Mr. Tikaria agreed to pay a fine of US $35,000 and serve a one-month all CME Group exchanges’ trading prohibition, while Mr. Shah agreed to pay a penalty of US $5,000 and sustain a six-month all CME Group exchanges’ trading suspension.
Finally, Marion Rus, a non-member, agreed to pay a fine of US $20,000 to resolve a disciplinary action brought by the Chicago Mercantile Exchange. CME alleged that on June 22, 2018, Mr. Rus violated position limits in June 2018 Live Cattle futures contracts; on the next trade date, he liquidated his positions that caused his violation. According to CME, he did not profit by his trading.
Compliance Weeds: Entering a user-defined spread for the purpose of disadvantaging other market participants can be a violation of general prohibitions against market disruption. (Click here to access CME Group Rule 575D; click here to access the CME Group MRAN regarding disruptive practices, Q/A 22.) In the CBOT disciplinary actions against Transmarket and Mr. Matalon, the exchange claimed that the respondents entered user-defined covered option spreads with the intent to avoid allocation of futures contracts that should have been tied to the covered options instruments. Presumably this was done to obtain more favorable prices for the options instruments then were available in the marketplace. Even though CME Group’s Globex System utilizes reasonability checks aimed to prevent this conduct from occurring, its system is not infallible.