Several individuals and one company settled Chicago Mercantile Exchange charges for varying trade practice violations.
A Panel of the Chicago Board of Trade ("CBOT") Business Conduct Committee found that on two separate dates a company held futures equivalent long positions over the spot month position limit in effect. The company neither admitted nor denied the CBOT position limits rule violation and agreed (see here and here) to fines of $15,000 and $30,000.
In separate disciplinary actions, the Panel found that brokers "in the Eurodollar options on futures pit, non-competitively traded contracts opposite other brokers within the same brokerage group without bidding or offering his orders in a manner consistent with open and competitive trades." The individuals neither admitted nor denied the CBOT open outcry and pre-negotiated trades rule violations and agreed to fines ranging from $25,000 to $40,000, and to trading suspensions of ten days each"(see here, here and here).
The Panel also found that a non-member entered matching buy and sell orders on the CBOT Globex trading platform related to wheat and soybean futures contracts for accounts with common beneficial ownership "with the knowledge and intent that the orders would match opposite one another for the purpose of flattening positions between accounts." The individual neither admitted nor denied the CBOT wash trades and disruptive practices violations involving , one individual agreed to a fine of $15,000.
Commentary
The enforcement actions, involving violations of the CBOT's spot month position limit levels, illustrate two points. First, the exchanges appear to be active and on top of this. Second, the wisdom of the CFTC's own Environmental Markets Advisory Committee ("EEMAC"), which in 2016 recommended:
- that if the CFTC insists on imposing new limits (notwithstanding the lack of evidence in the committee's opinion that new limits are necessary), it do so only for the spot month; and
- that it "utilize the expertise, experience and resources of exchanges to implement any position limits rule."
In general, exchanges are in a much better position than a government regulator to set the level of such limits, apply them to where they are really needed, tailor them to the economic characteristics of each contract, and adjust them in a timely manner as economic conditions change. As the EEMAC noted, "[e]xchanges, by virtue of their decades of experience and interaction with market participants, are especially well-positioned to . . . administer a position accountability regime." By contrast, it took the CFTC more than 18 years to update the position limit levels for Security Futures Products, which had become out of alignment with comparable limits of equity options.
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