The CME Group brought and resolved multiple disciplinary actions against various members and non-members related to their alleged failure to follow requirements of the Commodity Exchange, Inc. and the New York Mercantile Exchange in connection with exchange for related position transactions and block trades. Among the allegedly improper actions sanctioned by CME Group were the failure to maintain required documentation of the related position in connection with EFRP transactions, failure to timely report block trades, failure to report accurately the time of execution of a block trade, and misreporting exchange for swap transactions as block trades. Companies within one group, Marex Spectron, were subject to four separate disciplinary actions with sanctions ranging from US $7,500 to US $25,000. Other firms received fines within the same range and above.
Compliance Weeds: Once again CME Group has highlighted through disciplinary actions the detailed rules that must be followed in connection with EFRP and block trade transactions (similar detailed rules exist on other futures exchanges too). EFRPs have strict requirements related to recordkeeping, reporting and the nature of acceptable instruments that may qualify as the related position in an EFRP, among other requirements. Block trades also have strict requirements related to minimum size, reporting, and using information derived from potential block trades. Violation of these requirements may not only constitute a violation of CME Group’s rules, but also the rules of the CFTC prohibiting noncompetitive transactions. (Click here for an article on other CME Group disciplinary actions involving EFRPs and block trades, “CME Initiates and Resolves Still More Disciplinary Proceedings for EFRP and Block Trade Violations” in the April 28 to May 2 and May 5, 2014 edition of Bridging the Week.)