The CFTC’s Division of Market Oversight (DMO) has issued three separate rule enforcement reviews impacting major Designated Contract Markets (DCM) serving as trading venues, officials say.
The DMO’s rule enforcement reviews will impact the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange’s (CME) audit trail program, the New York Mercantile Exchange (NYMEX) and Commodity Exchange’s (COMEX) trade practice surveillance program, and the CBOT, CME, COMEX and NYMEX disciplinary program.
“Overall, the division found the exchanges’ respective programs to be generally in compliance with the assessed DCM core principles and commission regulations,” according to a CFTC statement. CFTC officials say the reviews did identify several deficiencies and issue some recommendations, however.
The deficiencies and recommendations for each project are:
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 CFTC 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
Deficiencies:
• 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
Deficiencies:
• As required by Commission regulation § 38.701, the exchanges must maintain sufficient enforcement staff to promptly prosecute possible rule violations.
Recommendations:
• The exchanges should take appropriate measures to ensure that internal deliberations do not interfere with the prompt resolution of disciplinary matters.
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