The CFTC Division of Market Oversight (the "Division") released the results of a rule enforcement review of the North American Derivatives Exchange, Inc. ("Nadex"). The Division reviewed compliance for a one-year target period.
The Division evaluated Nadex for compliance with two core principles under CEA Section 5(d) (Principle 2 ("Compliance with Rules") and Principle 12 ("Protection of Markets and Market Participants")) and related regulations. The Division found, among other deficiencies, that Nadex did not account properly for the potential of its members to commit spoofing violations and, as a result, did not monitor adequately for such violations. In response, the Division recommended that Nadex complete the development of a surveillance program to detect spoofing violations and submit a plan detailing the program. The Division also suggested that Nadex evaluate (i) its staff and resources to determine whether or not the current staff is able to detect trade practice violations adequately and (ii) its trade practice surveillance program in order to determine whether all types of trade practice violations are being identified by the current system. The Division recommended that Nadex update its Compliance Manual to include information regarding one-on-one training received by new compliance staff members.
The Division also identified several deficiencies requiring corrective action. Three of the observed deficiencies related to adherence to trade practice investigation and investigation report requirements. Additionally, the Division found that Nadex did not publish the terms of certain Market-Maker Agreements as required.
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