A second futures exchange has fined EOX Holdings, LLC, within a few months of its first citation in connection with its handling of block trades and for failing to supervise its employees and agents related to such handling. According to a “Notice of Disciplinary Action” by the New York Mercantile Exchange, from March 1 through May 23, 2o17, EOX, a Commodity Futures Trading Commission-registered introducing broker, misreported the execution times of various block trades, and failed to have procedures to review block trades before and after they were submitted to the exchange for accuracy. Pursuant to an offer of settlement which was accepted by a NYMEX business conduct committee, EOX agreed to pay a fine of US $75,000 to resolve the exchange’s allegations. In December 2017, EOX agreed to pay a fine of US $442,500 to resolve charges brought by ICE Futures U.S. that, from August 2013 through July 2014, it may have also failed to adequately supervise two of its employees in connection with their execution of block trades and handling of nonpublic customer information. (Click here for details in the article “ICE Futures U.S. Charges Introducing Broker and Employees With Impermissibly Disclosing Customer Order Information and Executing Block Trades Contrary to Requirements” in the December 10, 2017 edition of Bridging the Week.)
Separately, the Chicago Mercantile Exchange modified its prior summary access denial order against Hana Financial Investment. The exchange had banned the South Korean-based brokerage firm from all trading on CME Group exchanges for 60 days except for liquidating orders because of its alleged incomplete cooperation with several investigations from May 2017 through the present. CME also claimed that the firm may have “improperly and inaccurately” netted positions among independently owned and controlled accounts within omnibus accounts at several CME Group clearing members, causing the clearing members to inaccurately report long and short positions and impacting open interest reporting. This episode appears to have prompted the Joint Audit Committee two weeks ago to issue guidance to all futures commission merchants regarding their handling of omnibus accounts. (Click here for information regarding the fallout from the Hana episode in the article “Futures Joint Audit Committee Advises on Margin Calculations and Payments for Omnibus Accounts” in the June 10, 2018 edition of Bridging the Week.)
Under the revised order, Hana may trade for its proprietary accounts.
Unrelatedly, JPMorgan Chase Bank, N.A. agreed to pay a fine of US $125,000 to NYMEX for violating position limits on three trade dates in May 2017. Apparently, a systems mapping issue caused the firm not to account for the violative positions in its monitoring system.
Additionally, Shingo Yamamoto, a trader for Fuji Futures Co. Ltd., was accused by NYMEX and the Commodity Exchange, Inc. of entering and cancelling orders on the Globex electronic trading system during the pre-opening period solely to assess depth of the order book. NYMEX charged Mr. Yamamoto with disruptive trading in connection with such transactions, and Fuji Futures with failure to supervise. To resolve these charges, Mr. Yamamoto agreed to pay a fine of US $25,000 combined to both exchanges and serve a 20-business-day all CME Group exchanges’ trading suspension, while Fuji Futures agreed to pay a penalty of US $45,000. Similarly, Peter Howard was suspended from accessing all CME Group exchanges for 50 business days for allegedly engaging in similar disruptive pre-opening activity on NYMEX on multiple occasions from October 2015 through February 2016, while Jared Kuehner agreed to pay a fine of US $40,000 and was denied access to all CME Group exchanges for 10 business days for purportedly engaging in disruptive trading during the pre-opening on various occasions from January through July 2016.
Alphabit Trading, LLC and Weihao Huang were fined US $25,000 by CME and Comex, respectively, for engaging in spoofing-type activity. Mr. Weihao was also suspended from CME Group all exchange trading for 20 business days.
Compliance Weeds: CME Group and ICE Futures U.S. have made clear that entering and cancelling orders during the pre-opening period to assess market depth or manipulate the indicative opening price constitutes prohibited disruptive trading under CME Group Rule 575A (click here to access) and IFUS Rule 402(l) (click here to access), respectively. According to CME Group, a specific example of such prohibited activity is as follows:
During the pre-opening period on CME Globex, a market participant enters an order priced through the IOP (a bid higher than the existing best bid or an offer lower than the existing best offer) for the purpose of identifying hidden liquidity (e.g., resting stop and iceberg orders). The market participant then cancels that initial order and enters a new order based on the information obtained.