ICE Futures Criticized in CFTC Rule Review for Not Completing Investigations in One Year or LessThe Commodity Futures Trading Commission criticized ICE Futures U.S. for not completing investigations in one year or less absent mitigating circumstances, as required by its rules, in a rule enforcement review of the exchange's trade surveillance program. In addition, the CFTC recommended that ICE Futures better document its trade practice reviews to evidence, among other things, the trade dates reviewed; retain or have the capability to replicate parameters utilized to generate exception reports that prompt trade practice reviews; and expand trade practice reviews, as appropriate, to look for patterns of abuse by looking at additional trading days other than those initially flagged.
My View: In the CFTC’s rule review of ICE Futures, it noted that the Market Regulation department of the exchange has the authority to issue warning letters or a summary fine of up to US $10,000 if it determines that a rule violation may have occurred but is viewed to be minor. The CFTC noted that the exchange issued warning letters to 29 respondents based on trade practice investigations during the target period of its review. It raised no issued with such letters. This approach contrasts with the position taken by CFTC staff in a recent rule review of the CBOE Futures Exchange, LLC. There, the CFTC recommended that the exchange should promptly take appropriate disciplinary action when it makes a finding that a violation of a substantive trading rule occurred. This may sound innocuous; however, the recommendation was made in response to the issuance of warning letters by CFE to certain trading permit holders in response to their alleged placement of fictitious orders and trades. According to CFTC staff, “[w]hile a warning letter may be appropriate for certain violations of recordkeeping or audit trail rules, the Division believes that issuing a warning letter for a substantive trading violation is never appropriate.” (Click here for details regarding the rule review and findings in the article, “CFTC Rule Review Instructs CBOE Futures to Cease Issuing Warning Letters for Offenses Other Than Books and Records Offenses” in the September 25, 2016 edition of Bridging the Week.) As I wrote in September, this statement appears contrary to existing CFTC rules, and potentially limits the flexibility of exchange staff to deploy investigative and enforcement resources in the most efficient manner they determine. It’s good if the CFTC is backing off its earlier erroneous view.