November 24, 2014
CFTC DMO Issues Rule Enforcement Reviews of the Chicago Board of Trade, Chicago Mercantile Exchange, Commodity Exchange, Inc. and New York Mercantile Exchange, Inc.
Washington, DC — The U.S. Commodity Futures Trading Commission’s Division of Market Oversight (Division) today issued three separate rule enforcement reviews of certain Designated Contract Markets (DCMs).
The Division’s reviews assessed compliance with Commodity Exchange Act Core Principles for DCMs and related regulations with respect to: (1) the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME) audit trail program; (2) the New York Mercantile Exchange (NYMEX) and Commodity Exchange (COMEX) trade practice surveillance program; and (3) the CBOT, CME, COMEX, and NYMEX (collectively, the Exchanges) disciplinary program.
Overall, the Division found the Exchanges’ respective programs to be generally in compliance with the assessed DCM core principles and Commission regulations. However, the Division’s reviews identified certain deficiencies – areas where an exchange is not in compliance with a Commission regulation and must take corrective action, and recommendations – areas where an exchange should improve its compliance program. The deficiencies and recommendations identified in the reviews are summarized below.
CBOT and CME Audit Trail Program
Deficiencies:
• As required by Commission regulation § 38.553(a)(1), CBOT and CME must ensure that their program for reviewing front-end audit trail data is effective and the reviews are conducted in a timely manner.
• As required by Commission regulation § 38.553(a)(1), CBOT and CME must develop a program to at least annually review and enforce the assignment process of user IDs to automated trading models, algorithms, programs, and system in order to enforce the CBOT and CME’s user ID (Tag 50) policy.
• As required by Commission regulation § 38.553(b), CBOT and CME must ensure that the minimum summary fine amount for electronic trading audit trail deficiencies on each exchange is “meaningful” and “sufficient to deter recidivist behavior.” This minimum summary fine amount should be published in the Exchanges’ rules.
NYMEX and COMEX Trade Practice Surveillance Program
Deficiency:
• As required by Commission regulation § 38.158(b), NYMEX and COMEX must complete investigations in one year or less, absent mitigating circumstances.
Recommendations:
• NYMEX and COMEX should implement a system which would enable Market Regulation staff to efficiently track connections between related trade practice matters (complaints, research files, and cases) and thereby identify the source of time delays.
• NYMEX and COMEX should continue to develop strategies to detect spoofing.
• NYMEX and COMEX should reduce the time they take to complete pre-investigative trade practice matters (research files and complaints).
CBOT, CME, COMEX, and NYMEX Disciplinary Program
Deficiency:
• As required by Commission regulation § 38.701, the Exchanges must maintain sufficient enforcement staff to promptly prosecute possible rule violations.
Recommendation:
• The Exchanges should take appropriate measures to ensure that internal deliberations do not interfere with the prompt resolution of disciplinary matters.
Copies of the reports are available from the Commission’s Office of Public Affairs, Three Lafayette Centre, 1155 21st Street N.W., Washington, DC 20581, 202-418-5080, or by accessing the Commission’s website at www.cftc.gov.
Last Updated: November 24, 2014
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