Jaypee Singapore PTE LTD and Skeet Commodities DMCC both agreed to settle disciplinary actions brought by CME Group exchanges that they failed to supervise employees who engaged in disruptive trading practices in violation of the exchanges’ rules.
Two employees of Jaypee – Deepak Gautam and Satya Sharma – simultaneously settled charges that they engaged in spoofing-type conduct in connection with their trading of silver and natural gas futures contracts from December 2015 through April 2016. Jaypee was charged with failing to provide its traders with guidance regarding the exchanges’ rules and regulations generally, and disruptive trading in particular, and not supervising its traders’ trading activities to ensure their compliance with the exchanges’ rules. To resolve these matters, Jaypee agreed to pay the Commodity Exchange, Inc and the New York Mercantile Exchange combined US $55,000, while Mr. Gautam consented to pay a US $7,000 fine and serve a three-month suspension from all CME Group trading and Mr. Sharma agreed to pay a US $5,000 fine and serve a six-month trading suspension.
Skeet Commodities was separately charged with failing to supervise in connection with the alleged disruptive trading by one of its employees by also not providing any relevant training to its employees, as well as “by not being familiar with Exchange Rules” generally. Skeet agreed to pay a penalty of US $30,000 to resolve this matter.
Unrelatedly, Bertram Consultants Limited consented to a US $50,000 fine to settle a Chicago Mercantile Exchange disciplinary action alleging that, from March 2015 to June 2015, it engaged in disruptive trading practices when it waited until several minutes before the termination of trading on the contract’s last day of trading to place a single market on close liquidating order for almost 400 June 2015 NASDAQ 100 futures contract. This occurred, said CME, even after the firm received ongoing notifications and reminders about the planned delisting of the contract after the last trading day. According to CME, “[t]he execution of the order resulted in price and volume aberrations.”
Finally, Bueno Café Comercio Exportacao resolved a disciplinary action brought by ICE Futures U.S. that claimed it may have engaged in wash sales to move positions between accounts under common control. The firm agreed to pay a fine of US $7,5000 to resolve this charge.
Compliance Weeds: CME Group has made it clear through multiple disciplinary actions that firms that fail to supervise employees who engage in disruptive trading activities (such as spoofing) risk sanctions.
In addition to the disciplinary actions against Jaypee and Skeet, Focus and Vision General LLC resolved a disciplinary action brought by the Commodity Exchange, Inc. earlier this year related to the alleged spoofing-type activities of one employee by agreeing to pay a fine of US $30,000. (Click here for background in the article “Trader Settles COMEX Disciplinary Actions for Failure to Supervise Employee’s Purported Spoofing Activity” in the July 30, 2017 edition of Bridging the Week.)
However, CME Group has also indicated that, despite its capability to file charges against an employer saying that it is strictly liable for the wrongful acts of its employees and agents (click here to access CME Group Rule 432.W), it may not to seek to levy a penalty where the employer has engaged in meaningful supervision of its employees – even where the employees may also have engaged in disruptive trading practices. (Click here for background in the article “Recent CME Group Disciplinary Action Suggests Liability May Not Automatically Mean Fines” in the October 23, 2016 edition of Bridging the Week.)
Keep in mind that, under CME Group Rules, an agent for purposes of its strict liability rule includes an automated trading system. (Click here for background in the article “CME Group Settles With Trading Firm for Spoofing-Type Offenses, Holding It Strictly Liable for Acts of Agents; Orders Disgorgement of Profits” in the October 9, 2016 edition of Bridging the Week.)