Joshua Mathers agreed to pay a fine of US $25,000 and be suspended from all CME Group exchanges’ trading privileges for five business days to resolve a disciplinary action filed by the Chicago Board of Trade that he engaged in wash trades in violation of the CBOT’s requirements. According to CBOT, on “several dates” from June through November 2016, Mr. Mathers entered matching buy and sell orders for Kansas City Hard Red Winter Wheat futures contracts for accounts with beneficial ownership. Mr. Mathers was a CBOT non-member. Separately, Yongjoon Lee, a non-member of the Chicago Mercantile Exchange, was charged by CME with entering orders without the intent for execution on “multiple dates” from August 2015 through April 2016. According to CME, Mr. Lee placed small orders on one side of the market and larger orders on the other. Once the smaller orders began to be executed, Mr. Lee pulled his larger orders. Mr. Lee agreed to pay a fine of US $35,000 to resolve the CME’s charges and agreed to a 30-business day trading ban from all CME Group exchanges’ markets.
Compliance Weeds: The relevant CME Group rule prohibiting wash sales bans the placement of all orders for different accounts with common beneficial ownership if the order placer knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk. (Click here to access CME Group Rule 574.) Common beneficial ownership includes not only accounts with 100% common ownership but accounts with lesser common ownership. (Click here to access CME Group MRAN RA1712-5 (October 2, 2017), Q/A2.) Importantly, placement of orders intending to achieve a wash trade regardless of execution is a potential violation under the CME Group’s applicable rule. Moreover, executing agents accepting matching buy and sell orders have an independent duty to ascertain that such orders are for accounts (even potentially for accounts imbedded within omnibus accounts) with non-common beneficial ownership. According to CME Group, "[a]ccepting or executing simultaneous buy and sell orders without such assurance creates potential regulatory exposure if the execution of the orders yields a wash result."