CME Group amended its General Offenses rule (click here to access CME Group Rule 432) for each of its designated contract markets and the Swap Execution Facility Division of the Chicago Mercantile Exchange to add provisions that mirror language in a Commodity Futures Trading Commission rule that prohibits fraud-based manipulation (click here to access CFTC Rule 180.1). Under CME Group Rule 432, it will now be prohibited “to intentionally or recklessly use or employ or attempt to use or employ, any manipulative scheme, or artifice to defraud.” In addition, attempts to engage in fraud or bad faith as well as attempts “to deliver or cause to be delivered false, misleading or inaccurate information concerning crop or market information or conditions” that may impact the price of any of the CME Group exchanges’ futures or options prices are now prohibited – as opposed to, under prior rule, solely actual engagement or delivery. According to CME Group, these rules amendments were made “[a]t the request of the Commission. Separately CME Group also enacted various seemingly technical amendments to its rules for each of its DCMs and its SEF related to Globex access restrictions (click here to access CME Group Rule 574). Absent CFTC objection, all amended CME Group rules will be effective February 16.
Compliance Weeds: Although the amendments to the CME Group rule regarding Globex access restrictions seem non-substantive, holistic review of the amended rule is important as the revised provision appears to have expanded somewhat the existing obligations and potential liability of clearing members in connection with customers they guarantee. Among other things, a clearing member must now assist a CME Group investigation into any potential violation of its rules by “requiring any Person to produce documents, to answer questions from the Exchange, and/or to appear in an investigation” (emphasis added). The definition of Person appears to be broad enough to include not only the clearing member’s customer (as the rule currently references), but also its customer’s employees and agents. As before, if a clearing member has “actual or constructive notice” of a violation of an exchange’s rules in connection with a direct access customer and it fails to take “appropriate action” the clearing member “may be found to have committed an act detrimental to the interest or welfare of the Exchange.” (Click here to access the equivalent rule of ICE Futures U.S., Rule 27.04.)