At the end of 2019, two CME Group exchanges – the Chicago Mercantile Exchange and the Chicago Board of Trade – settled a number of disciplinary actions involving allegations of wash trading, disruptive trading and speculative positions limits violations.

In three related actions, involving Adrien Froidure, Charlotte Saint-Paul and Pierre Tomatis, CME alleged that each respondent engaged in indirect wash trades. According to CME, at various times in December 2017 and January 2018, in a coordinated fashion, Mr. Froidure bought or sold futures contracts opposite Ms. Saint-Paul who then sold or bought the same quantity of futures contracts at the same price opposite an account owned jointly by Mr. Froidure and Mr. Tomatis. Mr. Tomatis also used Mr. Froidure’s Tag 50 identification when entering orders on Globex. To resolve these disciplinary actions, Mr. Froidure and Mr. Tomatis each agreed to pay a fine of US $20,000 and be suspended from all CME Group exchanges’ access for three months, while Ms. Saint-Paul consented to a US $20,000 fine and a two-month suspension. The three respondents are all CME nonmembers.

Separately, Andrew Lombara agreed to pay a fine of US $60,000 to the Chicago Board of Trade and incur a 10-business-day all CME Group exchanges’ access ban for engaging in disruptive trading. According to CBOT, from August 31, 2015, to January 8, 2016, Mr. Lombara would place large orders in US Treasury Bond futures on one side of the market and smaller displayed iceberg orders on the other side of the market with the intent to have other traders transact opposite his smaller displayed orders. CBOT said that Mr. Lombara was successful in executing more of his smaller displayed orders than his larger orders utilizing his strategy. CBOT alleged that this strategy violated a CBOT rule that precludes entry or causing to be entered actionable or nonactionable messages with the intent to mislead other market participants. (Click here to access CBOT Rule 575B.) Additionally, Charles Mensh consented to pay a fine of US $30,000 and a 15-business-day all CME Group exchanges’ access ban for engaging in purported spoofing transactions from September 27 through October 4, 2018. CBOT alleged that Mr. Mensh layered large orders on one side of various futures markets and cancelled them after smaller resting orders on the other side of the relevant market were executed.

Finally, both Todd Delay and Grantham, Mayo, Van Otterloo & Co. LLC acquiesced to pay fines of US $15,000 and disgorge profits as a result of allegedly violating exchange speculative positions limits overnight or for one day. Both were nonmembers.

Compliance Weeds: It is important to remember that CME Group exchanges – similar to ICE Futures U.S. and CBOE Futures Exchange – prohibit four types of disruptive trading:

  1. entering orders or causing orders to be entered with the intent to cancel or modify the order before execution to avoid execution. This type of activity is typically referred to as spoofing and was allegedly at issue in the conviction of Michael Coscia. (Click here for background in the article “Federal Appeals Court Upholds Conviction and Sentencing of First Person Criminally Charged for Spoofing Under Dodd-Frank Prohibition” in the August 7, 2017 edition of Between Bridges.);
  2. entering or causing to be entered actionable or nonactionable messages with the intent to mislead other participants. This type of activity was purportedly at issue in Mr. Lombara’s disciplinary action; 
  3. entering or causing to be entered actionable or nonactionable messages with the intent to overload, delay or disrupt an exchange’s or other market participant’s systems; and
  4. entering or causing to be entered actionable or non-actionable messages with the intent to disrupt or with reckless disregard for the orderly execution of transactions. This type of activity was allegedly at issue in CME’s disciplinary action against Saxo Bank for liquidating customers’ positions on an illiquid market. (Click here for background in the article “CME Group Settles Disciplinary Action Alleging That Automatic Liquidation of Under-Margined Customers Positions by Non-US Futures Broker Constituted Disruptive Trading” in the March 20, 2017 edition of Between Bridges.)

(Click here to access CME Rule 575, here for CFE Rule 620(b), and here for IFUS Rule 4.02(l).)

The prohibitions against disruptive trading under the Commodity Exchange Act are, on their face, less expansive. (Click here to access 7 U.S.C. § 6c(a)(5).)