The CME Group Fines Brokers and Clearing Members

This week CME Nymex issued three disciplinary action notices to brokers and clearing members.

The first (click here) involves Macquarie Futures USA, a clearing member, who was penalized for failing to assess their client’s ability to take delivery for each account on its books with open positions in the expiring contract. Macquarie carried a long contract position for its customer in Dec-22 Henry Hub futures through to expiration but failed to assess its customer’s ability to take delivery and to ensure that the open positions in the physically delivered contract were liquidated in an orderly manner prior to the expiry of trading for the contract. They also found that Macquarie transferred the positions to another client capable of taking delivery but failed to include the proper indicator so that the transactions could be cleared as transfers. Macquarie were fined USD $20k.

The second (click here) involved Wildhawk Energy Inc. who were penalized for failing to report the correct execution time of block trades to the exchange in various Diesel and Gasoline futures spread contracts in March and May 2022. The were also deemed to have failed to retain voice recordings of the underlying trades, as well as failures to train and advise their brokers of their obligations around block trades. Wildhawk were fined USD $45k.

The last one (click here) involved Tullett Prebon (Europe) who failed to report several block trades in various Energy futures contracts to the exchange within the required time period following execution, and also failed to report accurate execution times for the block trades. Further, the committee found that Tullett had failed to diligently supervise the execution of block trades by its employees to enable compliance with the block trade reporting rules. Finally, they also found that in some instances in July 2021, a broker from Tullet disclosed non-public information to a potential counterparty that would have identified potential counterparties to a trade. Tullett were fined USD $150k.

RegTrail Insights

While these actions targeted clearers and brokers, the CME continues to focus on block trade behaviour. While the fines are seldom significant, enforcement in this area attracts unwanted publicity and attention from the respective market surveillance teams which may lead to closer scrutiny in other areas. Energy and commodity firms are advised to ensure proper training and diligence when executing block trades.