The CME Group issued notices regarding 18 disciplinary actions last Friday—all involving modest fines from US $7,500 to $35,000—most involving allegations of improper exchange for related position transactions or block trades; wash trades or position limits violations. Two firms were the subject of multiple disciplinary actions and paid multiple fines. Jefferies LLC was the subject of four distinct disciplinary actions related to alleged infractions involving block trades. In all four matters, the firm was charged with not reporting block trades within required time frames; in two of the actions, Jefferies was also charged with misreporting the accurate time of execution of each block trade; and in one action, the firm was also charged with aggregating block orders on one side of a transaction for different beneficial owners. Lakeview Energy LLC was also charged in two actions with engaging in impermissible EFRP transactions that were structured to move positions between two wholly owned subsidiaries—Plymouth Energy LLC and CE Acquisition CO LLC. CME alleged that these transactions were impermissible wash trades, and that the EFRPs were also non-bona fide. This was because there was not appropriate documentation to support the related position component of the transactions. Green Plains Asset Management LLC was fined US $25,000 for one incident of violating a position limit intraday, while Charles Adam was fined US $15,000 and required to serve a 20-business day CME Group trading suspension for entering orders in E-mini S&P futures contracts on various occasions between July 1, 2013, and March 26, 2014, during the pre-opening session without the intent to execute “bona fide transactions.” Daniel Shak also agreed to pay a fine of US $25,000 to CME Group related to his alleged violation of accountability limits in the December 2011 gold futures contract from September 14 to September 17, 2009. Just two weeks ago, Mr. Shak was fined US $100,000 for violating a prior settlement with the Commodity Futures Trading Commission related to his and his company’s (SHK Management LLC) alleged manipulation of crude oil futures contracts on two days in 2008. (Click here for more details in the article, “Don’t Trade It Again, Shak (at Least Not During the Closing Period),” in the April 5, 2015 edition of Bridging the Week.) None of the respondents to any of the CME Group disciplinary action settlements admitted or denied the rule violations on which their settlement was based.
Compliance Weeds: I have previously articulated the correct requirements in connection with EFRPs and block trades, and discussed requirements to comply with position limits. (Click here to access all prior articles on Bridging the Week related to this subject.) Any violation of an exchange’s rules related to EFRPs, block trades or position limits potentially constitutes a violate of CFTC rules prohibiting non-competitive trades, and speculative position limit violations, respectively.