ARMKAT LLC agreed to settle charges brought by the Commodity Futures Trading Commission that it violated speculative position limits in two soybean products’ futures contracts traded on the Chicago Board of Trade on two occasions – one in 2016 and the other in 2018.
According to the CFTC, ARMKAT violated the spot month limit (1) for December 2016 soybean oil futures by 360 contracts beginning the first day the relevant spot month limits went into effect at the close of business on November 29, 2016, and (2) for August 2018 soybean meal futures by 155 contracts on the second day the applicable spot month limits were in effect on July 31, 2018. On each occasion, ARMKAT liquidated its violative positions the next trading day. The firm resolved the CFTC’s charges by agreeing to pay a fine of US $140,000.
Separately, the CBOT resolved a disciplinary action against E. Davison Massey, the trader for ARMKAT, for the firm’s purported soybean meal futures speculative position limit violation on July 31, 2018. Mr. Massey consented to pay a fine of US $40,000 and disgorge US $16,560.05 that purportedly represented the amount of profit he realized when liquidating his violative positions. Mr. Massey also agreed to a 10-day all CME Group exchanges’ access ban.
In June 2017, Mr. Massey settled a separate disciplinary action with the CBOT related to ARMKAT’s alleged November 2016 speculative position limit violation involving soybean oil futures contracts. In connection with that matter, Mr. Massey agreed to pay a fine of US $30,000 and serve a 10-day all CME Group exchanges’ access prohibition. (Click here for details in the article “CME Clearing Member Settles Charges for Allegedly Not Retaining Required Audit Trail of Direct Access Client; Two CBOT Members Settle Charges Related to Purported Position Limit Violations” in the June 11, 2017 edition of Bridging the Week.)
My View: Although the CFTC named the trading firm, while the CBOT named the firm’s trader, it is not clear what is the societal benefit for parallel civil enforcement actions emanating from the identical fact patterns – particularly where one-half of the CFTC action is based on an incident addressed by the CBOT in a disciplinary action over two years ago.
Although speculative position limits are a very important tool under applicable law to help ensure competitive markets, these matters involving ARMKAT and Mr. Massey appear to be discrete incidents that were quickly addressed. It is not clear how the public interest is served by the CFTC employing scarce resources to bring and resolve a “pile-on” enforcement action.