CFTC ORDERS CARGILL DE MEXICO TO PAY $500,000 FOR ROLE IN WASH SALES SCHEME

FROM:  COMMODITY FUTURES TRADING 

CFTC Orders Cargill de México SA De CV to Pay $500,000 for Unlawfully Executing Wash Sales on the CBOT and KCBT

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against commodities trading company Cargill de México SA De CV (Cargill de México) for executing wash trades involving corn, soybean, and wheat futures contracts on the Chicago Board of Trade (CBOT) and wheat futures contracts on the Kansas City Board of Trade (KCBT). The CFTC order requires that Cargill de México pay a $500,000 civil monetary penalty.

The Order finds that on multiple occasions between March 2010 and August 2014 Cargill de México engaged in wash sales and unlawful non-competitive transactions in certain agricultural futures products, including corn, soybeans, and wheat on the CBOT, as well as in hard red wheat traded on the KCBT. Before orders for these trades were entered on an exchange, Cargill de México employees, either acting alone or with another employee, entered equal and opposite transactions in the same futures contract for another account that was also owned by Cargill de México, and matched the product, quantity, price, and timing of those orders and trades. The Order finds that by so prearranging, structuring, and entering these orders, which negated the risk incidental to an open and competitive marketplace, Cargill de México also engaged in noncompetitive transactions.

In addition to imposing the $500,000 civil monetary penalty, the Order also requires Cargill de México to comply with certain undertakings. First, the Order requires Cargill de México to conduct training for certain personnel addressing the ethics, compliance, and legal requirements of the Commodity Exchange Act (CEA) and CFTC regulations with regard to prearranged, fictitious, or noncompetitive trading. Second, the Order requires Cargill de México to submit a report to the CFTC’s Division of Enforcement representing (i) that Cargill de México has adopted policies and procedures designed to prevent any potential prearranged, fictitious, or noncompetitive trading in violation of the CEA and CFTC regulations, (ii) that Cargill de México has conducted certain training sessions for relevant personnel, and (iii) that Cargill de México has begun using the self-match prevention technology available on the front end system provided by its primary clearing firm. Finally, the Order requires Cargill de México to cease and desist from further violations of Section 4c(a)(1) of the CEA and CFTC Regulation 1.38(a), as charged.

The CFTC thanks the CME Group, Inc. for its assistance in this matter.

CFTC Division of Enforcement staff members responsible for this case are Trevor Kokal, James G. Wheaton, Lenel Hickson Jr., and Manal M. Sultan.

CFTC DMO RULE ENFORCEMENT REVIEWS ISSUED FOR CBOT, COMEX, CME, NYME

FROM:  U.S.COMMODITY FUTURES TRADING COMMISSION 
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

CFTC ORDERS MORGAN STANLEY CAPITAL GROUP TO PAY $200,000 PENALTY

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Morgan Stanley Capital Group Inc. to Pay $200,000 Penalty for Violating Soybean Meal Futures Speculative Position Limits

Washington, DC — The U.S. Commodity Futures Trading Commission (CFTC) today announced that Morgan Stanley Capital Group Inc. (MSCGI) agreed to pay a $200,000 civil monetary penalty to settle CFTC charges that it exceeded speculative position limits in soybean meal futures contracts trading on the Chicago Board of Trade (CBOT).

The CFTC Order finds that, beginning on January 14, 2013, MSCGI held in its house accounts net long positions in the CBOT soybean meal futures contract in excess of the all-months speculative position limit of 6,500 contracts established by the CFTC. The Order further finds that, on January 15, 2013, MSCGI decreased its net long position in CBOT soybean meal futures, but its position still exceeded the soybean all-months position limit. On January 16, 2013, MSCGI reduced its position below the CBOT soybean meal position limit, according to the CFTC Order.

In addition to imposing the $200,000 civil monetary penalty, the CFTC Order requires MSGCI to cease and desist from further violations of Section 4a(b)(2) of the Commodity Exchange Act and CFTC Regulation 150.2, as charged.

CFTC Division of Enforcement staff members responsible for this action are Karin N. Roth, David W. MacGregor, Lenel Hickson, Jr., and Manal M. Sultan.

CFTC ORDERS BROKER EMPLOYEE TO PAY PENALTY FOR MAKING FALSE STATEMENTS

FROM:  COMMODITY FUTURES TRADING COMMISSION 
CFTC Orders Futures Broker Employee Susan Butterfield to Pay $50,000 Penalty in Settlement of Charges of Making False Statements to the CFTC During Her Investigative Testimony

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it entered an Order requiring Susan Butterfield of New Lenox, Illinois, to pay a $50,000 civil monetary penalty for making false statements of material fact in testimony to CFTC staff during a CFTC Division of Enforcement investigation. The Order enforces the false statements provision of the Commodity Exchange Act (CEA), which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act).

According to the CFTC’s Order, Butterfield, an employee of a company registered with the Commission as an introducing broker (the IB), handled various clerical and administrative responsibilities concerning trading on the floor of the Chicago Board of Trade (CBOT). Her responsibilities included accepting and recording customer orders. When done properly, this involved time-stamping paper order tickets contemporaneously with the receipt of a customer commodity futures or options order to accurately record the time of day when the IB received the order.

On January 31, 2013, Butterfield gave sworn testimony in an investigation being conducted by the CFTC’s Division of Enforcement. The CFTC Order finds that during that testimony, Butterfield knowingly made false and misleading statements regarding whether she had improperly pre-stamped order tickets, i.e., whether she stamped order tickets in blank, prior to the time when a customer order was actually received. As the Order states, this testimony was significant in that use of pre-stamped order tickets may violate Commission Regulations and CBOT rules and also may facilitate unlawful trade allocation schemes in which brokers decide who will receive trades only after they are executed, potentially allowing them to profit at their customers’ expense.

The CFTC Order finds that prior to her CFTC testimony Butterfield told her supervisor, who was a principal at the IB, that “we pre-stamp orders and it’s something that is – that we should not be doing.” However, on January 31, 2013, when the Division of Enforcement staff questioned Butterfield on the IB’s pre-stamping practice, Butterfield falsely told the staff that she “never pre-stamped any [order] tickets.” Later during the course of her testimony the same day, Butterfield admitted to various instances of pre-stamping order tickets, but only after she was confronted by documents that plainly contradicted her initial false testimony. Ultimately, having been confronted with evidence that demonstrated her falsehoods, Butterfield admitted by the end of her testimony that it was in fact her daily practice to pre-stamp order tickets from multiple futures commission merchants throughout the trading session, in numbers amounting to dozens of order tickets every day.

David Meister, the CFTC’s Enforcement Director, stated: “When a witness walks into CFTC testimony he or she should plan to tell the truth to every question or face the consequences. We will use the new Dodd-Frank false statements provision against witnesses who provide false or misleading information to make sure it is well understood that lying is not an option.”

In addition to the $50,000 civil monetary penalty, the CFTC Order requires Butterfield to cease and desist from violating the relevant provision of the CEA, to never apply for or claim exemption from registration with the CFTC or engage in any activity requiring such registration or exemption, and to never act as a principal or officer of any entity registered or required to be registered with the CFTC.

The CFTC Division of Enforcement staff members responsible for this matter are Allison Passman, Theodore Z. Polley III, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard B. Wagner.