The Chicago Mercantile Exchange brought and settled a disciplinary action against Brandon Elasser for purportedly engaging in wash sales to earn trading-fee credits for his employer under a CME-administered incentive program. According to CME, Mr. Elasser placed matching buy and sell orders on Globex in Eurodollar futures for the same beneficial owner with the expectation the trades would match between June 2014 and July 2015. Mr. Elasser agreed to pay a fine of US $40,000 to resolve the CME’s disciplinary action and agreed to a 20-business day all CME Group trading access ban. Mr. Elasser previously settled charges by the Commodity Futures Trading Commission related to this incident by agreeing to pay a fine of US $200,000. (Click here for a copy of the relevant CFTC Order.)
Separately, two individuals resolved disciplinary actions alleging disruptive trading practices filed by CME Group exchanges. In one, Michael ten Hacken agreed to pay a fine of US $20,000 and submit to a 15-business day all CME Group trading access prohibition for purportedly entering and cancelling orders in Oats and Rice futures contracts on Globex during the pre-open period for the purpose of assessing market depth and not for executing orders. The Chicago Board of Trade claimed these transactions – which occurred on “multiple occasions” from January 3, 2016, through January 27, 2017 – caused “fluctuations in the publicly displayed Indicative Opening Price.” Additionally, Mark Palmer consented to pay a US $12,500 fine and a two-month all CME Group trading access prohibition to resolve charges that, from July 1, 2014, through September 4, 2015, he entered bids, offers and modifications on Globex in the pre-open period at prices through existing bids and offers. CME claimed these messages were not entered to achieve executions and also caused fluctuations in the publicly displayed Indicative Opening Price.
Finally, Phillip L. Martin agreed to pay a fine of US $20,000 and incur a 15-day all CME Group trading access prohibition for allegedly engaging in “numerous” wash sales from February 1, 2016, to October 12, 2016, to move positions from one to another or between accounts he owned. Mr. Martin accomplished this by purportedly entering matching buy and sell orders on Globex that he expected would match.
Compliance Weeds: As I have written previously, although much attention has been focused on the CFTC’s and exchanges’ prohibition against spoofing (e.g., placing an order without the intent at the time of order placement for the order to be executed ), market participants must be equally cognizant of exchanges’ prohibition against persons entering or causing the entry of order messages with the intent to disrupt or with reckless disregard for the consequences of such messages on the orderly trading of the market. (Click here to access CME Group Rule 575.D. and here for ICE Futures U.S. Rule 4.02(l)(1)(C) and (D).) Exchanges have used these prohibitions to prosecute traders for:
- purportedly misusing user-defined spreads (click here to access the article “CME Group Resolves Two Disciplinary Actions Alleging Market Disruption” in the October 1, 2017 edition of Bridging the Week);
- trading in an alleged disruptive fashion at a contract’s termination (click here to access the article “Two Firms Settle With CME Group Exchanges for Not Supervising Employees Who Allegedly Engaged in Disruptive Trading Practices” in the September 10, 2017 edition of Bridging the Week); and
- supposedly testing the liquidity of a market (click here to access the article “CME Group Exchanges Charge One Trader With Impermissibly Entering Orders to Test Gold Market Latency and Another With Failure to Timely Complete Delivery” in the June 4, 2017 edition of Bridging the Week).
CME Group has also brought a disciplinary action against a non-US brokerage entity for liquidating customers’ orders following non-payment of margin calls without considering the impact of the liquidation on market prices. (Click here to access 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.)