TRADE PRACTICE 

RULE ENFORCEMENT REVIEW 

ICE FUTURES U.S. 

Division of Market Oversight 

December 2, 2016
 
 

 

 

 

 

I. Rule Enforcement Review Scope 

The Division of Market Oversight (“Division”) has completed a rule enforcement review 

of the trade practice surveillance program of ICE Futures U.S. (“ICE Futures” or the 

“Exchange”).1

 The review focused on compliance with two core principles under Section 5(d) of 

the Commodity Exchange Act (“Act” or “CEA”),2

 as amended by the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (“Dodd-Frank Act”),3

 and Part 38 of the Commission’s 

regulations. Specifically, the Division’s review focused on Core Principles 2 (Compliance With 

Rules)

4

 and 12 (Protection of Markets and Market Participants),5 and Commission regulations 

1

 Rule enforcement reviews prepared by the Division are intended to present an analysis of an exchange’s overall 

compliance capabilities during the period under review. Such reviews deal only with programs directly addressed in 

the review and do not assess all programs or core principles. The Division’s analyses, conclusions, and 

recommendations are based, in large part, upon the Division’s evaluation of a sample of investigations and other 

exchange documents. This evaluation process, in some instances, identifies specific deficiencies in particular 

exchange investigations or methods but is not designed to uncover all instances in which an exchange does not 

address effectively all exchange rule violations or other deficiencies. 

The findings and recommendations in this rule enforcement review are limited to the Exchange and its products. 

This rule enforcement review, and the findings and recommendations herein, represent the view of the Division 

only, and do not necessarily represent the position or view of the Commission or of any other office or division of 

the Commission. 

2 7 U.S.C. 1 et seq. 

3 See Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010). 

4

 Core Principle 2 – Compliance With Rules: 

A.	 IN GENERAL – The board of trade shall establish, monitor, and enforce compliance with the rules of the 

contract market, includingi. access requirements 

ii. the terms and conditions of any contracts to be traded on the contract market; and 

iii. rules prohibiting abusive trade practices on the contract market. 

B.	 CAPACITY OF CONTRACT MARKET – The board of trade shall have the capacity to detect, investigate, 

and apply appropriate sanctions to any person that violates any rule of the contract market. 

C.	 REQUIREMENT OF RULES – The rules of the contract market shall provide the board of trade with the 

ability and authority to obtain any necessary information to perform any function described in this 

subsection, including the capacity to carry out such international information-sharing agreements as 

the Commission may require. 

5

 Core Principle 12 – Protection of Markets and Market Participants: 

2 
 

 

 

 

 

38.150; 38.152, 38.153, 38.155, 38.156, 38.158, 38. 159; and 38.650–651.6 The Division’s 

review of the Exchange’s trade practice surveillance program covered the period from March 1, 

2014 to February 28, 2015 (“target period”).7 

In conducting this review, Division staff interviewed officials and staff from the 

Exchange. The Exchange also provided a demonstration of the electronic systems that it uses to 

perform trade practice surveillance. The Division also reviewed numerous documents produced 

by the Exchange’s staff, including the following: 

	 policies and procedures for conducting trade practice surveillance; 

	 investigation documents and associated work product for a sample8

 of the trade 

practice reviews, complaints (“pre-case matters”) and cases related to potential 

trade practice violations that were closed during the target period;9 

	 minutes of meetings of the Board of Directors and the Regulatory Oversight 

Committee (“ROC”) held during the target period; and 

The board of trade shall establish and enforce rules— 

A.	 to protect markets and market participants from abusive practices committed by any party, including 

abusive practices committed by a party acting as an agent for a participant; and 

B.	 to promote fair and equitable trading on the contract market. 

6

 See Appendix B for a table of Core Principles and Regulations Reviewed. Because the substantive requirements of 

Core Principle 12 that relate to trade practice surveillance are similar to those of Core Principle 2, the Division has 

evaluated compliance with Core Principle 2 and the selected regulations listed herein rather than conduct a separate 

review of Core Principle 12 and its associated regulations, Commission regulations 38.650-651. 

7

 The Exchange’s trade practice surveillance program was previously reviewed in the Division’s February 2, 2010 

rule enforcement review, which covered the target period from June 1, 2007 to June 1, 2008. 

8

 To ensure a sufficient sample size, the Division reviewed at least half of each category of trade practice matters 

closed during the target period (i.e., 234 of 407 trade practice reviews, 7 of 10 complaints, and 41 of 61 cases). 

9

 See Section II for an overview of trade practice reviews, complaints, and cases. In Appendix A, see the analysis 

under § 38.153 for a description of trade practice reviews and complaints (both of which are pre-case matters), and 

the analysis under § 38.158 for a description of cases. 

3 
 

 reports from the Exchange’s tracking system for the disposition of trade practice 

reviews, complaints, and cases. 

The Division analyzed the Exchange’s trade practice surveillance program to determine 

whether the program was in compliance with the core principles and Commission regulations 

stated above, and whether the Division has identified any deficiencies with, or recommendations 

for, the program. For purposes of this report, a deficiency is an area where the Division believes 

that the Exchange is not in compliance with a Commission regulation and must take corrective 

action, and a recommendation concerns an area where the Division believes that the Exchange 

should improve its compliance program. 

As set forth below, the Division found that the Exchange generally demonstrated 

compliance with Core Principles 2 and 12. The Division made no recommendations regarding 

compliance with Commission regulations 38.150; 38.152, 38.155, 38.159 and 38.650–651. It 

made one recommendations pursuant to Commission regulation 38.153, one recommendation 

pursuant to Commission regulation 38.156, and one recommendation pursuant to Commission 

regulation 38.158. The Division also found one deficiency pursuant to Commission regulation 

38.158. 

The Division provided the Exchange an opportunity to review and comment on a draft of 

this report on October 20, 2016. On November 4, 2016, Division staff conducted an exit 

conference with officials from the Exchange to discuss the findings, deficiency, and 

recommendations set forth in the report. 

4 
 

II. Summary of Findings, Recommendations, and Deficiencies 

A. Findings without Recommendations or Deficiencies 

1. Rulebook (Core Principle 2, Commission regulations 38.150, 38.152) 

	 The ICE Futures Rulebook (“Rulebook”) sets forth access requirements, 

terms and conditions of contracts to be traded on the Exchange, and rules 

prohibiting abusive trading practices on the Exchange. The Division 

found that the Rulebook prohibits the trade practice violations enumerated 

in Commission regulation 38.152. 

2.	 Staff and technology (Core Principle 2, Commission regulations 38.155, 

38.156)10 

	 The Exchange’s regulatory program is administered by the Market 

Regulation Department, which comprises employees based in New York 

and Chicago. Chicago-based staff focuses on natural gas, physical 

environmental, and electricity (“Energy”) products; New York-based staff 

focus on precious metals, softs, and financial commodities (“NonEnergy”) products. 

	 The Division found that the Exchange maintains sufficient compliance 

department staff to conduct trade practice surveillance in compliance with 

Core Principles 2 and 12. At the conclusion of the target period, the 

Exchange employed 22 individuals in the Market Regulation Department 

responsible for identifying trade practice violations. 

	 The Division found that the Exchange’s automated trade practice 

surveillance tools comply with Commission regulation 38.156. The 

SMARTS system is a third-party automated trade practice surveillance 

database and analytic tool that provides alert functionality. In addition, 

the Exchange uses ICEcap, a proprietary database application that helps 

staff to detect trade practice violations on a T+1 (trade date + one day) 

basis. 

3.	 Capacity to detect and investigate rule violations (Core Principle 2, 

Commission regulation 38.153)11 

	 The Exchange’s trade practice surveillance program is divided between 

pre-case matters (trade practice reviews and complaints) and cases. Trade 

practice reviews are generated as a result of the Exchange’s review of 

10 See below for a recommendation related to Commission regulation 38.156. 

11 See below for a recommendation related to Commission regulation 38.153. 

5 
 

trade and messaging data. Complaints arise from internal Exchange 

sources or external sources (including Commission staff) by email, 

physical mail, phone, or in-person communication. 

	 Division staff determined that the Exchange adequately conducted 

investigations of complaints during the target period. For each complaint, 

investigators identified and retained information relevant to the complaint, 

including messaging and order data, and thoroughly analyzed whether the 

complaint warranted being opened as a case. 

	 During the target period, the Exchange initiated four potential spoofing 

cases and closed two potential spoofing cases. In December 2015, the 

Exchange adopted a dedicated Disruptive Trading Practices Review 

program in which investigators, on a monthly basis, are directed to 

identify disruptive messaging or trade activity, including spoofing. 

Patterns are identified and profiled through monitoring of real-time alerts. 

In determining which alerts and patterns warrant further inquiry, the 

Exchange directs Market Regulation staff to consider following factors: 

(a) pre-position orders that appear to benefit from new large orders after 

the cancellation of those large orders, (b) ratio of orders to cancellations 

compared to product thresholds, (c) activity from a trader that deviates 

from the trader’s typical behavior, (d) profit or loss in relation to trades 

that triggered an alert, and (e) the entry or cancellation of third party 

orders that appear to have been made in response to the messages or trades 

that triggered the alert. 

4.	 Investigations and investigation reports (Core Principle 2, Commission 

regulation 38.158)12 

	 Cases are conducted by investigators and initiated by referral from a precase matter or upon receipt of sufficiently detailed external information. 

Investigators review relevant data, such as account statements, customer 

account documents, and electronic communication data. Investigators 

collect documents from market participants through document requests 

and conduct interviews with relevant persons. 

5. Ability to obtain information (Core Principle 2, Commission regulation 

38.159 

	 The Rulebook provides Compliance staff and disciplinary committees 

with the ability to obtain testimony and books and records from Exchange 

members and market participants in investigations and hearings. 

12 See below for a deficiency relating to Commission regulation 38.158. 

6 
 

 

 

B. Findings with Recommendations 

1.	 Capacity to detect and investigate rule violations (Core Principle 2, 

Commission regulation 38.153) 

	 The Exchange stated that all of its trade practice reviews13 were conducted 

for all trade dates in the target period.14 The Division, however, was 

unable to confirm that all such reviews were actually conducted. The 

Non-Energy Trade Practice Review Log15 shows gaps16 during which time 

trade practice reviews do not appear to have been completed for NonEnergy products.17 For example, Wash Trade Reviews are listed as 

having been conducted for four out of the 12 months of the target period. 

The Non-Energy Trade Practice Review Log does not indicate that other 

trade practice reviews, including the Trading Ahead Review, the Trading 

at Settlement Review, and the Block Trade Review, were conducted at all 

during the target period. 

	 The Division also found a lack of documentation in trade practice reviews 

regarding the scope of trade dates reviewed. A majority of the monthly 

Non-Energy trade practice review files examined by the Division typically 

contained trade and messaging data for only a single day, rather than an 

entire month. 

	 Recommendation: The Division recommends that all of the 

Exchange’s trade practice reviews be conducted for all trade 

dates. Further, the Exchange should maintain documentation 

sufficient to demonstrate that such reviews, including those 

that require only minimal investigation, were conducted. 

2.	 Automated trade surveillance system (Core Principle 2, Commission 

regulation 38.156) 

13 See the analysis pursuant to 38.153 – Trade Practice Reviews – Trade Practice Review Procedures for a list of 

trade practice review programs established by the Exchange. 

14 The Exchange stated that reviews requiring only minimal investigation were not recorded. 

15 See the analysis pursuant to 38.153 – Detecting Rule Violations regarding the Exchange’s system for tracking 

matters. 

16 The Division notes that the Energy Trade Practice Review Log did not contain such gaps. 

17 The Division notes that for all reviews other than Crossing Order Reviews, the March 2015 Compliance Manual 

failed to specify the frequency with which reviews should be completed (e.g., weekly, monthly, or quarterly). The 

December 2015 Compliance Manual specifies that all trade practice reviews will be conducted on at least a monthly 

basis. In January 2016, the Exchange stated that all trade practice reviews are conducted on a monthly basis. 

7 
 

 

	 The Division found that the Exchange did not retain and could not 

replicate the parameters used to generate exception report alerts for trade 

practice reviews. Such information is not only useful for the Division in 

evaluating the Exchange’s trade practice surveillance program, but could 

also assist the Exchange in determining whether the scope of its alert 

parameters and report queries are properly calibrated to detect potential 

trade violations.18 

	 Recommendation: The Exchange should retain or have the 

capability to replicate the parameters used to generate trade 

practice review exception report alerts. 

3.	 Investigations and investigation reports (Core Principle 2, Commission 

regulation 38.158) 

	 The Division identified 13 Non-Energy Cases closed during the target 

period that lacked an analysis of other potential patterns of abuse that may 

have occurred on additional trading days. In five of these cases, the 

investigation reports stated that the scope of the investigation was 

expanded to include additional trade dates, but there was no evidence of 

such expansion in the investigation files. The Exchange stated that 

undocumented expanded reviews may have been conducted in a number 

of cases, but without documentation, the Division cannot verify that the 

expanded reviews occurred. 

	 Recommendation: The Division recommends that the scope of 

all trade practice investigations be expanded as appropriate to 

look for patterns of abuse, for example, by including a review 

of additional trading days, and that such expansions be 

documented. 

C. Findings with a Deficiency Requiring Corrective Action 

1.	 Investigations and investigation reports (Core Principle 2, Commission 

regulation 38.158) 

	 Market Regulation closed 61 trade practice-related cases during the target 

period. Counting from the time each case was initiated and ending the 

date the case was closed, cases were open for an average of 461 days. 

Thirty-three cases were closed in one year or less, including 19 cases open 

for more than 180 days. Twenty-eight cases were open for more than one 

18 During the review, the Exchange provided lists of the number of exceptions triggered by two of the ICEcap 

reports (RFC Exception Analysis and TAS Exception Report), and the number of alerts triggered by SMARTS 

alerts, but this information would not be sufficient to allow the Exchange to adjust the scope of alert parameters and 

report queries. 

8 
 

year, including twelve cases that remained open for two years or more. Of 

the 28 cases that were open for more than one year, the Division identified 

10 cases without sufficient mitigating circumstances to justify the length 

of time the case was open. In addition, the Division identified three trade 

practice reviews that were open for more than 365 days without sufficient 

mitigating circumstances.19 Commission regulation 38.158(b) requires that 

investigations be completed in one year or less, absent mitigating 

circumstances. 

	 Deficiency: As required by Commission regulation 38.158(b), 

the Exchange must complete investigations in one year or less, 

absent mitigating circumstances. 

Additional details regarding the facts and analysis relevant to the Division’s review are 

contained in the Compliance Matrix in Appendix A. 

19 See the analysis pursuant to 38.153 – Trade Practice Reviews – Trade Practice Review Timeliness. 

9 
Appendix A 

Compliance Matrix 

CFTC Regulation Findings Regarding Exchange’s Compliance 

Core Principle 2 – Compliance with Rules 

§ 38.150 Core Principle 2 

The ICE Futures Rulebook (“Rulebook” or “Exchange Rules”) sets forth access requiremenconditions of contracts to be traded on the Exchange, and rules prohibiting abusive trading the Exchange. 

§ 38.152 Abusive trading practices prohibited 

Chapter 4 of the Rulebook prohibits the trade practice violations enumerated in Commissio38.152.20 

§ 38.155 Compliance staff and resources 

The Exchange’s regulatory program is administered by the Market Regulation Department, comprises employees based in New York and Chicago. Chicago-based staff focus on naturphysical environmental, and electricity (“Energy”) products, whereas New York-based stafprecious metals, softs, and financial commodities (“Non-Energy”) products.21 

The Division found that the Exchange maintains sufficient compliance department staff to cpractice surveillance. Employees based in New York and Chicago are responsible for idenpractice violations in their respective product categories. At the conclusion of the target peExchange employed 22 individuals responsible for identifying trade practice violations. Foindividuals were employed in the New York office: a Vice President of Market Regulation, Compliance Officer, an Assistant General Counsel, a Compliance Systems Manager, two CManagers, and eight individuals serving as investigators or analysts. Eight individuals in thoffice were responsible for conducting trade practice surveillance:22 a Director of Market S

20 See Exchange Rules 4.02, 4.04, and 27.23.21 The Exchange offers the following categories of non-energy products: agriculture, credit, equity derivatives, FX, freight, interest rate22 Chicago staff are also responsible for conducting market surveillance. 

10 
Manager of Market Regulation, and six analysts.23 The Vice President of Market Regulatio

the Regulatory Oversight Committee and the Senior Vice President General Counsel, CorpSecretary. 

§ 38.156 Automated trade surveillance system 

The Exchange uses two automated systems to conduct trade practice surveillance. The Excis to adjust alerts and reports as needed. 

 SMARTS: Third-party automated trade practice surveillance database / analytic tool w

functionality. Used for real-time monitoring and reconstruction of trading activity. Prgraphical view of trading in a specific market at a specific time. For order, trade, and cinformation, SMARTS provides compilation, retrieval, sorting, filtering, and analysis fThe following are examples of alerts available in SMARTS as of March 2015: Price S

Participant Volume Spike, Bait & Switch, Energy Block Trade Report, Unusual Order the Interval Price Limit Hold Alert. 

 ICEcap: Proprietary database application that allows staff to detect trade practice viola

(i.e., trade date plus one day) basis. Allows for trade reconstruction based on order, traclearing information. Provides reports that track give-ups, traders, block trades, cancecleared allocation, counterparties, and clearing members. The following are examples offered by ICEcap as of March 2015: Account Change Report, Allocation & Claim Tr

Review, Automated Trader Management System Detail Report, Authorized Trader ExSummary Report, Block Trade Pre-Hedging Reports, Block Trade Exception Report, CTrade Review, Cleared Allocation Review, Cleared Trade Review, Counterparty CompCounterparty Trader Trades, Cross/Washing/Prearranged Report, Customer Type IndicComparison, EIA Front-running Report, Electronic Audit Trail Review, Wash Trade RDay Reports Futures or Options, High Volume Request for Crosses, Market Profile SuQuotes Order Review, Order Review, Order & Trade Review, Order Review GTC, PoPass Report, Request for Cross Exception Analysis, RFC/RFQ Review, Single User PrSummary, TAS Exception Report, TEAR Detail, TEAR Summary, Time & Sales, TraTrade Summary Report, Trader Firm Trading Ahead Review, CM Trading Ahead SumAhead Using Give-Ups, and UDS Lookup. 

23 As of January 2016, the Exchange employed 23 employees who were responsible for identifying trade practice violations. Fourteen 

Market Regulation, a Chief Compliance Officer, an Assistant General Counsel, a Compliance Systems Manager, two Compliance Man

individuals in the Chicago office were responsible for conducting trade practice surveillance: a Director of Market Surveillance, a Man

11 
The Division found that the Exchange did not retain and could not replicate the parameters 

generate exception report alerts for trade practice reviews. Such information is not only useDivision in evaluating the Exchange’s trade practice surveillance program, but could also aExchange in determining whether the scope of its alert parameters and report queries are prcalibrated to detect potential trade violations.24 

§ 38.153 Capacity to detect and investigate rule violations 

Detecting Rule Violations25 

The Exchange’s trade practice surveillance program is divided between pre-case matters (trreviews and Complaints) and cases. Pre-case matters are tracked in trade practice review lo

are tracked in Service Now, a database application. Market Regulation has the ability to issue warning letters and summary fines directly from cases are referred to the Business Conduct Committee (“BCC”).27 For trade practice violati

greater than summary fines and warning letters can only be imposed after a case is referred Sanctions cannot be imposed directly from pre-case matters. Collecting Information and Documents Pursuant to Rule 21.04, ICE Members, employees of ICE Members, and non-member markare required to submit testimony and books and records upon request from compliance staff 

24 During the review, the Exchange provided lists of the number of exceptions triggered by two of the ICEcap reports (RFC Exception A

SMARTS alerts, but this information would not be sufficient to allow the Exchange to adjust the scope of alert parameters and report q

25 Division staff primarily relied on the requirements set forth in the March 2015 Compliance manual to assess the Exchange’s capacity 26 During the target period, the Exchange tracked pre-case matters for energy products in a log separate from other pre-case matters. Th

now tracked in Service Now. 

27 Market Regulation can refer cases to the BCC if Market Regulation believes it would be appropriate to issue a fine greater than a war

whether rule violations may have occurred. Additionally, in contested matters, the BCC conducts evidentiary hearings to determine if r

12 
§ 38.153 

Capacity to detect and investigate rule violations 

(continued) 

Pre-Case 

Trade Practice Reviews 

Trade Practice Review Procedures 

During the target period,28 the Exchange had established six review programs (“trade practi

listed below, that seek to identify trade practice violations on a regular basis: 30 

 Cross/Wash/Prearranged Trade Review: Seeks to identify instances where cross or

prearranged trades were not exposed for the minimum period of five seconds befor

 Trading Ahead Review: Seeks to identify instances in which a member or firm dir

indirectly trades for a personal account while in the possession of an executable cuthat is subsequently executed at a less favorable price than that of the personal trad

 Trading at Settlement Review: Examines transactions occurring during the closing  Cross Trade Review: Seeks to verify that orders input as Crossing Orders when op

are placed by a trader with common control over accounts, or when orders are to be based on pre-execution communication. 

 Wash Trade Review: Seeks to identify trades that have been executed with the inte

taking a bona fide position exposed to market risk. 

 Block Trade Review: To ensure that block trades are executed only in contracts wh

trades are permitted, by eligible contract participants, at a fair and reasonable pricerecords are kept, and block trades are reported properly. 

Trade practice reviews focus on trading or messaging data exceptions identified in a given 

28 The list below represents programs that were in effect as of September 2010 and March 2015. The Division notes that program proce

March 2015 Compliance Manual. For example, reviews relating to open outcry trading were removed, trading ahead reviews were expreviewed in the Block Trade Review increased from 5 sample trades to 10 sample trades. The following reviews were new as of the Mexecuted for the purpose of transferring money from one account to another, typically pre-arranged off-Exchange), Block Trade Pre-HeSubmission Review (targeted review focusing on whether block trades are reported in a timely manner). 

29 Market Regulation also conducts ad hoc reviews of alerts and exception reports to detect trade practice violations. 30 See the analysis under 38.153 – Trade Practice Reviews – Conduct of Trade Practice Reviews for a recommendation addressing gaps 

13 
§ 38.153 

Capacity to detect and investigate rule violations (continued) 

Exchange’s procedure is to conduct all such reviews once per month.31 The Exchange requ

review trade, time, and sales records. Where appropriate, analysts are directed to request anrecords held by market participants. In rare situations, Exchange staff may ask initial, “off 

questions of market participants during a review; “on the record” questions are asked only d

Reviews are tracked in trade practice review logs. During the target period, reviews relatinenergy products were stored in a separate log (“Non-Energy Trade Practice Review Log”) frelating to energy products (“Energy Trade Practice Review Log”). Disposition of Trade Practice Reviews Trade practice reviews are closed in one of two ways. If staff determines that a rule violatioccurred, a case is opened. If staff determines that no potential rule violation occurred, the review is closed. All decisions to close trade practice reviews are approved by managers or Dispositions are noted in the review logs. The Exchange does not require formal written re

drafted for trade practice reviews.33 

Trade Practice Reviews Opened During Target Period The Exchange opened 411 trade practice reviews during the target period, 345 of which relproducts (“Energy trade practice reviews”), and 66 of which related to non-energy products trade practice reviews”). Among the 345 Energy trade practice reviews, 328 reviews (95 pclosed during the target period, while 17 reviews (5 percent) remained open at the end of thAlerts triggered in the SMARTS system were the most common type of Energy trade practaccounting for 134 reviews (39 percent). Other common categories of Energy trade practicincluded wash trade reviews, which accounted for 67 Energy reviews (19 percent); cross antrade reviews, which accounted for 55 Energy reviews (16 percent); front-running reviews, 30 Energy reviews (9 percent); money pass reviews, accounting for 28 Energy reviews (8 p

31 In January 2016, the Exchange stated that all trade practice reviews are conducted on a monthly basis. The Division notes that for all 

Manual failed to specify the frequency with which reviews should be completed (e.g., weekly, monthly, or quarterly). The December 2

conducted on at least a monthly basis. 

32 As noted in the analysis pursuant to 38.153 – Pre-Case – Trade Practice Reviews – Disposition of Trade Practice Review, reviews ca

the analysis pursuant to 38.153 – Detecting Rule Violations, sanctions cannot be issued directly from pre-case matters (complaints and 

33 For Non-Energy trade practice reviews, formal reports were drafted during the target period. For Energy trade practice reviews, revi

14 
§ 38.153 

Capacity to detect and investigate rule violations (continued) 

pre-hedging reviews, accounting for 18 Energy reviews (5 percent); trading ahead reviews, 

12 Energy reviews (3 percent); and trading at settlement reviews, accounting for one Energthan 1 percent). The majority of the 66 Non-Energy trade practice reviews (50 reviews, 77 percent) were cl

target period. Sixteen reviews (24 percent) remained open at the conclusion of the target petrade reviews were the most common type of review among the 66 Non-Energy trade practiaccounting for 61 reviews (92 percent). Wash trade reviews accounted for four reviews (6 

Trade Practice Reviews Closed During Target Period The Exchange closed 407 trade practice reviews during the target period. Energy reviews a347 reviews (85 percent), while Non-Energy reviews accounted for 60 reviews (15 percent)347 Energy trade practice reviews, four trade practice-related cases were initiated. From thEnergy trade practice reviews, four trade practice-related cases were initiated. Timeliness of Trade Practice Reviews As noted above, the Exchange closed 347 Energy trade practice reviews and 60 Non-Energpractice reviews during the target period. For Energy reviews closed during the target perioduration was nine days, and one such review was open for greater than 90 days.35 For Non

reviews closed during the target period, the average duration was 122 days, and 34 such revopen for greater than 90 days, four of which remained open more than 365 days. Of the fouopen for more than 365 days, the Division identified three reviews without sufficient mitigacircumstances to justify the length of time the reviews were open.36 

34 In addition, reviews of Exchange for Swaps accounted for one review (2 percent). 35 Because the Energy Trade Practice Review Log lacked an open date, this section counts the date of underlying market activity as the 36 The Division reviewed three out of the four reviews that were open for more than 365 days. See the analysis pursuant to 38.158 – Tim

15 
§ 38.153 

Capacity to detect and investigate rule violations (continued) 

Conduct of Trade Practice Reviews Division staff reviewed 234 of the 407 trade practice reviews (57 percent) that were closed target period and identified several issues. Although the Exchange stated that all of its tradreviews37 were conducted for all trade dates in the target period,38 the Division was unable 

all such reviews were actually conducted. The Non-Energy Trade Practice Review Log39 s

during which time trade practice reviews do not appear to have been completed for Non-Enproducts.41 For example, Wash Trade Reviews are listed as having been conducted for four 

months of the target period. The Non-Energy Trade Practice Review Log does not indicate trade practice reviews, including the Trading Ahead Review, the Trading at Settlement RevBlock Trade Review, were conducted at all during the target period. The Division also foudocumentation in trade practice reviews regarding the scope of trade dates reviewed. A mamonthly Non-Energy trade practice review files examined by the Division typically containmessaging data for only a single day, rather than an entire month. During the target period, the Exchange initiated four potential spoofing cases and closed twspoofing cases. In December 2015, the Exchange adopted a dedicated Disruptive Trading PReview program in which investigators, on a monthly basis, are directed to identify disruptor trade activity, including spoofing. Patterns are identified and profiled through monitorinalerts. In determining which alerts and patterns warrant further inquiry, the Exchange direcRegulation staff to consider following factors: (a) pre-position orders that appear to benefit large orders after the cancellation of those large orders, (b) ratio of orders to cancellations cproduct thresholds, (c) activity from a trader that deviates from the trader’s typical behavioloss in relation to trades that triggered an alert, and (e) the entry or cancellation of third par

37 See the analysis pursuant to 38.153 – Trade Practice Reviews – Trade Practice Review Procedures for a list of trade practice review p38 The Exchange stated that reviews requiring only minimal investigation were not recorded.39 See the analysis pursuant to 38.153 – Detecting Rule Violations regarding the Exchange’s system for tracking matters. 40 The Division notes that the Energy Trade Practice Review Log did not contain such gaps.41 The Division notes that for all reviews other than Crossing Order Reviews, the March 2015 Compliance Manual failed to specify the 

quarterly). The December 2015 Compliance Manual specifies that all trade practice reviews will be conducted on at least a monthly baconducted on a monthly basis. 

16 
§ 38.153 

Capacity to detect and investigate rule violations (continued) 

appear to have been made in response to the messages or trades that triggered the alert. 

Pre-case 

Complaints 

Complaint Procedures Complaints are received from internal Exchange sources or from external sources (includin

staff) by e-mail, physical mail, phone, or in-person communication. The Exchange’s proceMarch 2015 was to log complaints in one of two ways: as complaints in review logs,42 or a

Service Now, the case database.43 After receiving complaints, analysts review Exchange in

determine if any potential rule violations have occurred. Disposition of Complaints Complaints are closed in one of two ways. Where Exchange staff determines that no potenviolations have occurred, the complaint is closed. Otherwise, an investigation is opened.44 

approve all decisions to close complaints. The Exchange does not require written reports to complaints that do not become investigations.45 

Complaints Opened During Target Period 

The Exchange opened 11 trade practice-related complaints during the target period: 10 wer

Energy products (“Energy Complaints”), whereas one related to non-Energy products (“NoComplaints”). All 10 of the Energy Complaints were closed during the target period. The 

42 See the analysis pursuant to 38.153 – Detecting Rule Violations for a description of how pre-case matters are tracked. 43 If a complaint is sufficiently detailed as to warrant initiating a case upon receipt, the complaint will be opened as a case, rather than a 

For complaints that were opened as cases, see the analysis pursuant to 38.158 – Investigations and investigations reports, below.

44 As noted below under “Complaints Closed During Target Period,” none of the complaints closed during the target period were referr45 For Non-Energy Complaints, formal reports were drafted during the target period. For Energy Complaints, complaint details are liste

17 
§ 38.153 

Capacity to detect and investigate rule violations (continued) 

Energy Complaint remained open at the conclusion of the target period. Complaints Closed During Target Period The Exchange closed 10 complaints during the target period, seven of which were reviewed 

Division. No Non-Energy Complaints were closed during the target period; all 10 complai

Energy Complaints. Of the closed complaints, no trade practice cases were initiated, and th

complaints reviewed were closed with no action. The most common product at issue in the was the Algonquin Citygates Basis Future, which accounted for two complaints (10 percen

products at issue in the complaints included the ERCOT North 345 KV Real-Time Peak DaFuture contract, the NYISO Zone A Day-Ahead Peak Daily Fixed Price Future contract, th

Fixed Price Future contract, the HSC HPL Pool Physical Fixed Price Spot contract, and the England Massachusetts Hub Day-Ahead Peak Mini Fixed Price Future contract. Timeliness of Complaints Each of the 10 Energy complaints closed during the target period had an average duration oSeven complaints were closed in less than seven days, whereas two complaints were open fseven days but less than 30 days. One complaint remained open for 30 days or more, but ledays. Conduct of Complaints Based on Division staff’s review of seven of the 10 complaints closed during the target peri

percent), the Division determined that the Exchange adequately conducted investigations of 

during the target period. Investigators identified and retained information relevant to comp

including messaging and order data, and thoroughly analyzed whether complaints warranteas cases. 

§ 38.158 Investigations and investigation reports 

Case Procedures The Exchange’s procedure is to initiate cases either directly upon receipt of sufficiently det

information46 or by referral from a pre-case matter.47 When a case is initiated, it is assigned 

46 See the analysis pursuant to 38.153 – Pre-case – Complaints – Complaint Procedures for a description of how complaints can be open

18 
§ 38.158 

Investigations and investigation reports (continued) 

number. Exchange staff also draft a case assignment sheet listing the Exchange investigato

Exchange manager, and the case number. During the course of an investigation, investigato

to collect and analyze relevant data, including account statements, customer account documelectronic communication data (e.g. telephone recordings, emails, and instant messages). T

policy is for information to be collected from market participants through document reques

case files. Investigators are directed to conduct interviews with relevant persons, including 

and employees of members and non-member market participants (e.g. traders), and floor brInterviews are generally tape recorded. Logs of cases are stored in Service Now, a database application. Among other information

tracks the case number, the open date, the close date, a short description of the case, the cas

the case source. Although Service Now broadly identifies the source of each potential viol

customer complaint, Compliance group, ICE Market Surveillance group), during the target 

cases involving non-energy products (“Non-Energy Cases”), it lacked a field indicating the 

complaint or trade practice review number.48 

Case Disposition Market Regulation investigators close cases subject to approval by supervisors and the ChieOfficer or the Director of Market Surveillance.49 If Market Regulation determines that no r

occurred or finds insufficient evidence that a rule violation occurred, an investigation is clofurther action. If Market Regulation determines that a rule violation may have occurred anare viewed to be minor, Market Regulation has the authority to issue a warning letter or a suup to $10,000. Summary fines can be issued for recordkeeping violations, improper cross tviolations, data reporting violations, order entry requirements violations, and failing to provrecords within the prescribed time period. Where violations are found and Market Regulatiimpose a sanction greater than a warning letter or summary fine, the investigation will be reBCC. 

47 See the analysis pursuant to 38.153 for a description of trade practice reviews and complaints. 48 The Exchange stated that as of February 2016, after the target period, the Exchange had integrated Trade Practice Review Logs into S

case matters. 

49 The Chief Compliance Officer is based in New York, whereas the Director of Market Surveillance is based in Chicago.

19 
§ 38.158 Investigations and investigation reports 

(continued) 

When investigations are closed, investigators are directed to draft investigation reports that 

analysis regarding whether rule violations occurred and disciplinary action recommended, i

Exchange’s procedure is for such reports to be approved by supervisors and senior staff. Cases Closed During Target Period A total of 61 trade practice-related cases were closed during the target period, 54 of which had been opened prior to the target period. The majority of the cases were Non-Energy Ca79 percent), whereas energy products accounted for 13 cases (21 percent) (“Energy Cases”)Cases categorized as relating to block trades were the most common type of case for the cloaccounting for 13 cases (21 percent). Other categories of cases involved wash trades, which 10 cases (16 percent); cross trades for 10 cases (16 percent); money pass for nine cases (15 request for quote violations for eight cases (13 percent); trading at settlement issues for six percent); price spike for two cases (3 percent); layering for one case (2 percent); flickering percent), and automated trading system issues for one case (2 percent). Of the closed cases, the most common dispositions were that the cases were referred to the 

with no action, both of which accounted for 19 cases each (31 percent each). The 19 cases action was taken against any respondent involved 35 respondents. Twenty-nine respondentto the BCC. Summary fines were issued in 18 cases (30 percent) involving 21 respondentsa combined total of $143,000 in summary fines. Warning letters were issued in five cases (involving 29 respondents. Timeliness of Cases 

Of the cases closed during the target period, counting from the time each case was initiated 

date the case was closed, cases were open for an average of 461 days. Thirty-three cases wone year or less, including 19 cases open for more than 180 days. Twenty-eight cases were than one year, including twelve cases that remained open for two years or more. Of the 28 open for more than one year, the Division identified 10 cases without sufficient mitigating to justify the length of time the case was open. In addition, as noted above, the Division ide

20 
trade practice reviews that were open for more than 365 days without sufficient mitigating circumstances.50 Commission regulation 38.158(b) requires that investigations be complete

or less, absent mitigating circumstances. The Division identified instances in which the underlying conduct preceded the case initiatisignificant period of time. Because the case initiation date used in the counts above does nthe conduct that gave rise to the case occurred, the Division also calculated case duration usunderlying conduct date. Using this methodology (“extended case counting methodology”)duration of cases was 514 days. Thirty-seven cases remained open for more than 365 days, remained open for 730 days or more. Based on the analysis above, the Division is concernelength of time the Exchange takes to complete cases. When a significant period of time elathe conduct at issue and the date the case was closed, transgressions may continue to occur deterrent effect of sanctions. Conduct of Investigations Division staff reviewed 41 of the 61 cases (67 percent) closed during the target period and iissue warranting a recommendation. The Division identified 13 Non-Energy Cases closed target period that lacked an analysis of potential patterns of abuse that may have occurred otrading days. In five of these cases, the investigation reports stated that the scope of the invexpanded to include additional trade dates but there was no evidence of such expansion in tinvestigation files. The Exchange stated that undocumented expanded reviews may have b

in a number of cases, but without documentation, the Division cannot verify that the expandoccurred. Warning Letters As noted above, the Exchange issued warning letters to 29 respondents based on trade pracinvestigations closed during the target period. In its review of warning letters involving traviolations, the Division found no instances in which the Exchange issued warning letters to individual for the same violation in a 12 month period. 

§ 38.158 Investigations and investigation reports (continued) 50 See the analysis pursuant to 38.153 – Trade Practice Reviews – Trade Practice Review Timeliness. 

21 
§ 38.159 

Ability to obtain information 

The Rulebook provides compliance staff and disciplinary committees with the ability to oband books and records from Exchange members and market participants in investigations a

22 
Appendix B 

ICE FUTURES RULE ENFORCEMENT REVIEW
 

TABLE OF CORE PRINCIPLES AND 

REGULATIONS REVIEWED 

§ 38.150 Core Principle 2. 

(a) In general. The board of trade shall establish, monitor, and enforce compliance with the rules 

of the contract market, including: 

(1) Access requirements; 

(2) The terms and conditions of any contracts to be traded on the contract market; and 

(3) Rules prohibiting abusive trade practices on the contract market. 

(b) Capacity of contract market. The board of trade shall have the capacity to detect, investigate, 

and apply appropriate sanctions to any person that violates any rule of the contract market. 

(c) Requirement of rules. The rules of the contract market shall provide the board of trade with 

the ability and authority to obtain any necessary information to perform any function described 

in this section, including the capacity to carry out such international information-sharing 

agreements, as the Commission may require. 

§ 38.152 Abusive trading practices prohibited. 

A designated contract market must prohibit abusive trading practices on its markets by members 

and market participants. Designated contract markets that permit intermediation must prohibit 

customer-related abuses including, but not limited to, trading ahead of customer orders, trading 

against customer orders, accommodation trading, and improper cross trading. Specific trading 

practices that must be prohibited by all designated contract markets include front-running, wash 

trading, pre-arranged trading (except for certain transactions specifically permitted under part 38 

of this chapter), fraudulent trading, money passes, and any other trading practices that a 

designated contract market deems to be abusive. In addition, a designated contract market also 

must prohibit any other manipulative or disruptive trading practices prohibited by the Act or by 

the Commission pursuant to Commission regulation. 

§ 38.153 Capacity to detect and investigate rule violations. 

A designated contract market must have arrangements and resources for effective enforcement of 

its rules. Such arrangements must include the authority to collect information and documents on 

both a routine and non-routine basis, including the authority to examine books and records kept 

by the designated contract market's members and by persons under investigation. A designated 

contract market's arrangements and resources must also facilitate the direct supervision of the 

market and the analysis of data collected to determine whether a rule violation occurred. 

23 
§ 38.155 Compliance staff and resources. 

(a) Sufficient compliance staff. A designated contract market must establish and maintain 

sufficient compliance department resources and staff to ensure that it can conduct effective audit 

trail reviews, trade practice surveillance, market surveillance, and real-time market monitoring. 

The designated contract market's compliance staff also must be sufficient to address unusual 

market or trading events as they arise, and to conduct and complete investigations in a timely 

manner, as set forth in § 38.158(b) of this part. 

(b) Ongoing monitoring of compliance staff resources. A designated contract market must 

monitor the size and workload of its compliance staff annually, and ensure that its compliance 

resources and staff are at appropriate levels. In determining the appropriate level of compliance 

resources and staff, the designated contract market should consider trading volume increases, the 

number of new products or contracts to be listed for trading, any new responsibilities to be 

assigned to compliance staff, the results of any internal review demonstrating that work is not 

completed in an effective or timely manner, and any other factors suggesting the need for 

increased resources and staff. 

§ 38.156 Automated trade surveillance system. 

A designated contract market must maintain an automated trade surveillance system capable of 

detecting and investigating potential trade practice violations. The automated system must load 

and process daily orders and trades no later than 24 hours after the completion of the trading day. 

In addition, the automated trade surveillance system must have the capability to detect and flag 

specific trade execution patterns and trade anomalies; compute, retain, and compare trading 

statistics; compute trade gains, losses, and futures-equivalent positions; reconstruct the sequence 

of market activity; perform market analyses; and support system users to perform in-depth 

analyses and ad hoc queries of trade-related data. 

§ 38.158 Investigations and investigation reports. 

(a) Procedures. A designated contract market must establish and maintain procedures that require 

its compliance staff to conduct investigations of possible rule violations. An investigation must 

be commenced upon the receipt of a request from Commission staff or upon the discovery or 

receipt of information by the designated contract market that indicates a reasonable basis for 

finding that a violation may have occurred or will occur. 

(b) Timeliness. Each compliance staff investigation must be completed in a timely manner. 

Absent mitigating factors, a timely manner is no later than 12 months after the date that an 

investigation is opened. Mitigating factors that may reasonably justify an investigation taking 

longer than 12 months to complete include the complexity of the investigation, the number of 

firms or individuals involved as potential wrongdoers, the number of potential violations to be 

investigated, and the volume of documents and data to be examined and analyzed by compliance 

staff. 

(c) Investigation reports when a reasonable basis exists for finding a violation. Compliance staff 

must submit a written investigation report for disciplinary action in every instance in which 

compliance staff determines from surveillance or from an investigation that a reasonable basis 

exists for finding a rule violation. The investigation report must include the reason the 

24 
investigation was initiated; a summary of the complaint, if any; the relevant facts; compliance 

staff's analysis and conclusions; and a recommendation as to whether disciplinary action should 

be pursued. 

(d) Investigation reports when no reasonable basis exists for finding a violation. If after 

conducting an investigation, compliance staff determines that no reasonable basis exists for 

finding a violation, it must prepare a written report including the reason(s) the investigation was 

initiated; a summary of the complaint, if any; the relevant facts; and compliance staff's analysis 

and conclusions. 

(e) Warning letters. No more than one warning letter may be issued to the same person or entity 

found to have committed the same rule violation within a rolling twelve month period. 

§ 38.159 Ability to obtain information. 

A designated contract market must have the ability and authority to obtain any necessary 

information to perform any function required under this subpart C of the Commission’s 

regulations, including the capacity to carry out international information sharing agreements as 

the Commission may require. Appropriate information sharing agreements can be established 

with other designated contract markets and swap execution facilities, or the Commission can act 

in conjunction with the designated contract market to carry out such information sharing. 

§ 38.650 Core Principle 12. 

The board of trade shall establish and enforce rules: 

(a) To protect markets and market participants from abusive practices committed by any party, 

including abusive practices committed by a party acting as an agent for a participant; and 

(b) To promote fair and equitable trading on the contract market. 

§ 38.651 Protection of markets and market participants. 

A designated contract market must have and enforce rules that are designed to promote fair and 

equitable trading and to protect the market and market participants from abusive practices 

including fraudulent, noncompetitive or unfair actions, committed by any party. The designated 

contract market must have methods and resources appropriate to the nature of the trading system 

and the structure of the market to detect trade practice and market abuses and to discipline such 

behavior, in accordance with Core Principles 2 and 4, and the associated regulations in subparts 

C and E of this part, respectively. The designated contract market also must provide a 

competitive, open and efficient market and mechanism for executing transactions in accordance 

with Core Principle 9 and the associated regulations under subpart J of this part. 

25