Andrey Sakharov, a nonmember, was summarily barred from trading any CME Group product for 60 days based on a determination by CME Group’s chief regulatory officer or delegate that such action was necessary to “protect the best interests of the Exchanges and the marketplace.” According to CME Group, on multiple dates since July 1, 2016, Mr. Sakharov allegedly placed orders on Globex in an account not in his name and without an executed power of attorney. Using this account, he placed small quantity orders on one side of the market in August 2016 gold and natural gas futures contracts, and large quantity orders on the other side. He then cancelled both sides of his orders quickly afterwards. CME Group did not claim that any of these orders were placed to effectuate the execution of other orders; however, it claimed that Mr. Sakharov placed trades without any intent that they be executed. CME Group also said that an introducing firm advised it that the account on whose behalf Mr. Sakharov placed these orders had been referred to the Cyprus Securities and Exchange Commission for possible money laundering. In addition, alleged CME Group, Mr. Sakharov placed trades for a least four other accounts not in his name at an unidentified futures commission merchant after advising the same introducing firm that “he did not want to be officially associated with these accounts, since he was concerned that he may be banned from trading following this investigation.” Unrelatedly, three futures commission merchants were fined by the Chicago Mercantile Exchange for violations of rules related to financial requirements and/or requirements pertaining to the segregation of customer funds. The alleged violations appear to be of the nature of recordkeeping or procedural offenses, rather than deficiencies in any amounts required to be maintained. Each of the firms was fined US $50,000. Separately, LPS Futures LLC agreed to pay a fine of US $15,000 to resolve a disciplinary action brought by ICE Futures U.S. that charged it misreported the execution time of a block trade, and failed to report a block trade to the exchange within 15 minutes of execution, as required.
Legal Weeds: Designated contract markets are required by the Commodity Futures Trading Commission rule to have a disciplinary process that includes certain required elements that promote fairness, but may include an emergency process that permits a DCM to “impose a sanction, including suspension, or take other summary action against a person or entity subject to its jurisdiction upon a reasonable belief that such immediate action is necessary to protect the best interest of the marketplace.” (Click here to access the CFTC’s guidance regarding its Core Principle 13 for DCMs – Disciplinary Procedures.) Pursuant to this CFTC authority, DCMs, like CME Group exchanges, have adopted rules to permit summary denial of access to exchanges’ trading facilities “upon a good faith determination that there are substantial reasons to believe that such immediate action is necessary to protect the best interests of the Exchange.” (Click here to access CME Group Rule 413.A. See also ICE Futures U.S. Rule 21.02(f); click here to access.) Under these rules, there is typically a maximum period such summary ban may remain in effect. In the interim, a respondent may request a hearing before a hearing panel. In April 2015, CME Group summarily barred two traders – Nasim Salim and Heet Khara – from trading on any CME Group exchange for 60 days relying on its summary emergency suspension authority because of the respondents’ then current alleged spoofing activities. (Click here to access details in the article, “CME Group Summarily Suspends Trading Privileges of Two Traders Without Hearing for Alleged Spoofing and Non-Cooperation” in the May 3, 2015 edition of Bridging the Week.)