The Chicago Mercantile Exchange Group found early presents under its Christmas tree this year in the form of reasonably favorable rule enforcement reviews by the Commodity Futures Trading Commission’s Division of Market Oversight.
CFTC staff examined the enforcement of audit trail requirements by the Chicago Board of Trade and the CME, trade practice requirements by the New York Mercantile Exchange and The Commodity Exchange, and the disciplinary program of all four CME Group entities.
The CFTC staff found that the CME Group exchanges generally complied with all core principles relevant to the specific reviews. CFTC staff recommended, however, that the CBOT and CME design and implement a procedure to “review and enforce” at least annually the exchanges’ process to assign a unique identifier—known as a “Tag 50”—to individual automated trading system operators or teams, and to increase the minimum summary fines relevant to audit trail deficiencies “to defer recidivist behavior;” that NYMEX and COMEX “continue” to enhance their capability to identify spoofing; and that all CME Group exchanges “ensure that internal deliberations do not interfere with the prompt resolution of disciplinary matters.” CFTC staff, in one of the reports, discussed seven matters at CBOT and two at CME that apparently were delayed because of “protracted deliberations” among senior management regarding the exchanges’ pre-hedging rules applicable to block trades.
Just a few weeks ago, CME Group brought and settled over 20 disciplinary actions for payment of fines between US $400 and $5,000 for violations of its requirements related to Tag 50. (Click here for further details in the article “CME Brings Over 20 Disciplinary Actions for Incorrectly Identifying Globex Terminal Operators” in the October 27 to 31 and November 3, 2014 edition of Bridging the Week.)
Compliance Weeds: After the Commodity Futures Trading Commission issued an August 2013 rule enforcement review of CME Group related to its market surveillance and encouraged it to enhance its monitoring of exchange for related positions transactions, CME Group banned transitory EFRPs and brought and settled numerous disciplinary actions involving EFRPs. (Click here to access the article “CME Publicizes a Plethora of EFRP Fines Involving Incomplete Documentation, Late Submissions and Improper Parties,” in the February 24, 2014 edition of what is now known as Between Bridges). Just a few weeks ago, CME Group brought over 20 cases related to Tag 50 infractions—just a short time before the CFTC issued its current report card encouraging CBOT and CME to enhance its summary fines around these identifiers. The CFTC has also asked NYMEX and COMEX to enhance their monitoring of spoofing. Accordingly, it appears timely for trading organizations to update and enforce their internal procedures related to potential disruptive trading practices—if not already done by now.