Disciplinary Action on CME COMEX and CBOT

This week saw four individual Disciplinary Actions issued by the CME COMEX and CBOT disciplinary panels continuing the CME Group's active run of enforcement actions.

The first case (click here) relates to the perennial charge of Disruptive Trading Practices in breach of rule 575A. The Panel found that between 21 and 29 October 2021, the trader had entered orders in various Gold and Copper futures with the intent, at the time of order entry, to cancel those orders before they were executed – this involved entering a large order on one side of the market that the trader cancelled after receiving fills on orders entered on the other side of the order book. The trader was fined $USD35,000 as well as a disgorgement of $USD 2,157.50 plus a 20-business-day suspension from trading on any CME venue.

The second case (click here) relates to a charge of Pre-arranged trading in breach of Rule 539A. The Panel found that between 16 July 2020 and 11 September 2020 a trader at the firm with discretionary control over an account prearranged and non-competitively executed numerous transactions in COMEX Gold and Silver futures opposite a single trader employed by another unnamed firm. The Panel concluded that the firm was strictly liable for the acts of its employee and ordered them to pay a disgorgement of profits amounting to $USD38,040.

The third case (click here) relates to a charge of Wash trading in breach of Rule 534. The Panel found that on 30 June, 6 July and 7 July 2021 the accused and another trader placed opposing orders in COMEX Copper Futures Calendar Spreads for accounts with common beneficial ownership for the purpose of transferring positions between accounts, resulting in those orders trading opposite one another to avoid taking a bona fide market exposed position. The trader was fined $USD15,000 and issued a five-business-day suspension from trading on any CME venue.  

The final case (click here) issued by CBOT relates to a charge of Disruptive Trading Practices in breach of rule 575A. The Panel found that on numerous occassions between 4 September 2020 to 1 June 2021 the trader violated CBOT Rule 575.A by entering large futures orders in corn, wheat, and soybean while also having resting options orders on the same futures contracts but in the opposite direction. After Stone received a fill on his options order, he cancelled his large order(s) in Corn, Wheat and Soybean futures in full. The trader was fined $USD30,000 and was suspended from trading on any CME venue for 10 days.

RegTrail Insights

The last case is a classic 'spoofing' example. Those firms whose traders also trade options in futures will benefit from benchmarking this case with their surveillance alerts to ensure spoofing alerts are designed to compare futures and related options in futures for a given asset class or instruement.

The CME market surveillance team continues to be extremely active amongst the major commodity exchanges. For those firms active on any of the CME venues, compliance is advised to feed summaries of these enforcement cases through to Front Office to continually reinforce the areas of focus of the exchange. While the fines and disgorgements may appear modest, such cases brings the organization’s activities into view of other regulatory stakeholders, including the CFTC.