CME fines OTCex $85,000 for alleged violations

The financial trading platform OTCex has agreed to pay an $85,000 fine to CME Group for its alleged violations.

The Business Conduct Committee of the Chicago Mercantile Exchange (CME) recently made findings regarding OTCex's trading activities. According to the committee, between September 8, 2021, and May 23, 2022, OTCex submitted multiple block trades to the Exchange in various futures contracts, including E-mini Consumer Staples Select Sector, E-mini Russell 2000 Index, E-mini Energy Select Sector, E-mini Industrial Select Sector, S&P 500 Annual Dividend Index, E-mini Financial Select Sector, E-mini Utilities Select Sector, E-mini Real Estate Select Sector, BTIC E-mini S&P 500, and Adjusted Interest Rate S&P 500 Total Return futures. However, it was discovered that these trades had inaccurate structures and execution times, and in some instances, OTCex failed to report the block trades to the Exchange within the required timeframe following execution.

Furthermore, the committee found that OTCex did not diligently monitor its employees and provide adequate training on the relevant Exchange rules and Market Regulation Advisory Notices to ensure compliance.

As a result of these findings, the Panel concluded that OTCex violated CME Rules 526, 526.F., and 432.W.

CME Rule 526 governs block trades and specifies the products eligible for such transactions and the minimum quantity thresholds. Subsection F states that the seller or broker handling the block trade must report each transaction to the Exchange within the specified time period and in the prescribed manner. The report must include details such as the contract, contract month, price, quantity, clearing members, execution time, and relevant information for options. The Exchange is responsible for promptly publishing this information separately from regular market reports.

In addition, CME Group Market Regulation Advisory Notice RA2019-5 highlights the requirements for block trade submissions to CME Clearing. It emphasizes the accurate reporting of execution times, as the execution time is determined by the parties involved in the trade. Failure to report accurate execution times may lead to disciplinary action.

Lastly, Rule 432.W. of the CME outlines general offenses, including the failure to diligently supervise employees and agents involved in business activities related to the Exchange.