Firms Penalized for Exchange "Related Position" Violations

Two firms settled NYMEX charges for executing "non-bona fide" Exchange for Related Position ("EFRP") transactions.

According to the respective CME Business Conduct Committee ("Panel") Notices (see Notice #1 and Notice #2), the firms were on opposite sides of "non bona-fide" EFRP transactions as to a Platinum Futures contract. The Panel found that the EFRP transactions were "non-bona fide" because "[they] [were] contingent upon a simultaneous related position transaction and executed in ... manner[s] designed to avoid any material market risk associated with the EFRP's related position components" in violation of NYMEX Rule 538.C ("Related Positions").

The Panels further determined that the transactions were arranged to avoid the physical settlement requirement of the rule, as the firms were not able to make or take delivery of the physical commodity underlying the EFRP.

To settle the charges, both firms were ordered to separately pay $20,000 to the Exchange.