ICE Futures US Issues Multiple Disciplinary Notices

This week ICE Futures US announced a series of Disciplinary Notices which mostly target clearing members and brokers, with five cases against four entities. 

The first (click here) involved Wedbush Securities Inc. who, between March and November of 2022, violated Rule 6.15(a) by misreporting large trader positions in multiple instances in the option and futures contracts of the Henry LD1 Same Day Fixed Price Future market. They were also found to have violated Exchange Rule 4.01(b) by failing to establish, administer, and enforce effective supervisory systems, policies, and procedures to ensure the accurate reporting of large trader positions. They also violated Rule 21.04 by failing to respond to inquiries from ICE in a timely and sufficient manner. Wedbush were fined $USD110,000.

The second involved PVM Oil Associates who, between March 2020 and November 2021 were found to have violated a number of rules regarding block trades including:

• Rule 6.08(b)(i) - failing to comply with order ticket requirements;
• Rule 6.07(a) - failing to comply with general record-keeping requirements;
• Rule 4.07(c) - misreporting the execution time and submitting trades beyond the 15-minute reporting window; and
• Rule 4.02(i) - disclosing the identity of a customer who placed an order without the customer’s express consent.

They also determined violations of Rule 4.01 (failing to diligently supervise the block trade activities of its employees) and Rule 4.01(b) (failing to establish, administer, and enforce supervisory systems, policies and procedures, which are designed to achieve compliance with Exchange Rules). The PVM entities involved were fined $USD120,000 and $USD130,000 respectively.

The third and fourth cases (click here and here) involved orders against BNP Paribas. The first case found that, between April 2021 and November 2022, BNP violated Rule 2.12 by misreporting open interest in multiple instances in the Henry Penultimate Future contract and the California Carbon Allowance Vintage 2022 Future contract, and violated Rule 6.15(a) by misreporting large trader positions in multiple instances in numerous energy future and option contracts. They also found that BNP had violated Rule 4.01(b) by failing to establish, administer, and enforce supervisory systems, policies, and procedures that are reasonably designed to ensure compliance with Exchange Rules. In the second ruling it was found that BNP violated Rules 2.12 and 6.15(a) by misreporting open interest and large trader positions in the Coffee “C” Future (“KC”) contract for August 26, 2022. They were also found to have violated Rule 6.15(a) by misreporting large trader positions in the KC contract for August 31, 2022. Finally, they were found to have violated Rule 4.01(a) for failing to diligently supervise the Exchange-related activities of its employees related to open interest and large trader reporting. BNP were fined $USD200,000 for the first notice and $USD15,000 for the second. 

The fifth case (click here) involved Goldman Sachs who, between November 2021 and November 2022, were found to have violated Rule 6.15(a) by misreporting large trader positions in multiple instances in the Henry Penultimate Fixed Price option contract between. They were also found to have violated Rule 2.12 by misreporting open interest in multiple instances in the ICE WTI 1st Line Future contract between April 2021 and December 2022. Finally, they were found to have violated Rule 4.01(b) by failing to establish, administer, and enforce effective supervisory systems, policies, and procedures that are reasonably designed to ensure compliance with Exchange Rules. Goldman were fined $USD175,000.

The final case (click here) was against an energy firm, Pacific Summit Energy LLC, who violated Rule 6.20(b) on 24 June 2022 by establishing a position in the spot month Henry LD1 Fixed Price Future contract that exceeded the contract’s spot month speculative position limit on an intraday basis. Pacific Summit were fined $USD10,000 and ordered to pay a disgorgement of $USD5,405. 

 RegTrail Insights

The final case should be of interest to energy and commodity traders given the position limit infringement relates to an intraday breach which suggests ICE have the capability to monitor for such infringements (as opposed to end of day only). No details were provided regarding the magnitude of the position or the size of the breach hence it is not clear whether a breach of Federal position limits occurred although we will no doubt be hearing from the CFTC in due course should this be the case. Perhaps coincidental but Pacific Summit were also recently fined by FERC for cross-market manipulation (click here). It is well established that the exchanges and regulatory agencies exchange information relating to rule violations – this might well be a case of a firm being “caught in the cross-hairs”, a place most firms would choose not to be.