Traders Settle CME Wash Trade Violations
An individual and several trading firms settled separate disciplinary actions for violating CME "wash trade" rules.
According to one CME Business Conduct Committee ("Panel") Notice, an individual entered buy and sell orders in "December 2027 Three-Month SOFR" futures between two accounts of different entities with common beneficial ownership for the legitimate purpose of hedging the interest rate exposure in each. The Panel said the orders traded against each other in part, and the individual knew or reasonably should have known that the execution of the orders would result in the prohibited wash result. To settle the charges, the individual was ordered to (i) pay a $10,000 fine and (ii) serve a 5-business day suspension from access to any CME Group market.
According to two other Panel determinations (Notice 1 and Notice 2), two trading firms simultaneously negotiated the purchase and sale of "December 2022 CBL Nature-Based Global Emissions Offset Futures" in separate block trades opposite a single counterparty. The Panels found that the firms understood that the purpose of the block trades was to accommodate the counterparty’s transfer of positions between related accounts. As such, the Panels concluded that they knew or reasonably should have known that the purpose of the trades was to negate or strictly limit market risk. To settle the charges, the firms respectively agreed to (i) disgorge profits in the amount of $3,050 and $15,000 and (ii) separately pay a $20,000 fine.
According to another CME Notice, a firm employee placed buy and sell orders in the same product and expiration month in the "Methanol and NGL" futures markets between two trading accounts with common beneficial ownership in order to transfer positions between the two accounts. The Panel found that the employee "knew or reasonably should have known that the purpose of the orders was to avoid taking a bona fide market position exposed to market risk." Additionally, the Panel found that during this timeframe, the firm failed to maintain complete written or electronic records for these wash block trades, including any electronic timestamp reflecting the date and time each order was received. Further, the Panel said that the firm failed to "supervise its employees with sufficient compliance training or educational materials regarding the reporting and execution of block trades and wash trades to ensure compliance with NYMEX rules regarding block trades and wash trades." To settle the charges, the firm was ordered to pay a $75,000 fine