UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

TROY MERTZ 

v. 

CME GROUP INC., MARKET REGULATION 

DEPARTMENT 

CFTC Docket No. 13-E-01 

SUPPLEMNT AL BRIEFING 

ORDER 

Troy Mertz appeals a final order of the CME Group disciplining him for violating Legacy 

CME Group Rule 432.B, which prohibits engaging in fraud, bad faith, or conduct or proceedings 

inconsistent with just and equitable principles of trade. Two related issues regarding the 

proceedings below concern us: First, it appears that Mertz may not have received sufficient 

notice that his post-closing day resolution of outtrades was a potential source of liability in 

CME's inquiry. Second, if notice ofthe charge was not sufficient, the record is unclear as to 

whether he suffered any resulting prejudice. As explained below, to clarify the record and 

ensure that fundamental fairness was observed in the proceedings under review we order 

supplemental briefing on these issues. 

Background 

During trading on May 6, 2010, the so-called "flash crash," Mertz, a floor broker filling 

orders in the CME S&P Options pit, had two trades that did not fully clear because his 

counterparty did not acknowledge those trades. Mertz eventually assigned those trades to his 

error account and cleared them the next day for a total profit of nearly $1.1 million. The CME' s 

Market Regulation Group ("Market Regulation") brought enforcement proceedings alleging that 

Mertz intentionally underfilled those orders in pursuit of windfall profits, and CME's Probable 
Cause Committee ("PCC") issued a Charging Memorandum charging that Mertz committed four 

violations of CME rules by intentionally underfilling the orders. These charges were considered 

by the CME's Business Conduct Committee ("BCC"), which found that Mertz did not 

intentionally underfill the orders. However, the BCC concluded that Me1iz failed to follow 

applicable CME rules regarding the apportionment of outtrades, and he was therefore guilty of a 

violation, notwithstanding his lack of intent in creating the outtrades. Me1iz timely appealed to 

the Commission. 

Notice 

On appeal, Mertz argues, inter alia, that the proceedings were not fundamentally fair, see 

17 C.F.R. § 9.33(c)(2), because he did not have sufficient notice of all the charges against him. 

Mertz alleges that the BCC crafted a "new theory of liability" after trial in holding him liable for 

failing to resolve outtrades in conformance with CME Rules 527.A-C. See Mertz Br. at 11-12, 

15. 1 Mertz appears to claim that the PCC's charges focused on intentionally underfilling the 

orders in question; Me1iz argues that this did not provide sufficient notice that the BCC might 

conclude that the failed trades were unintentional, and yet find that Mertz violated the rules 

concerning the resolution of outtrades. Id. 

Mertz's argument appears to have merit. The PCC's Charging Memorandum focuses 

extensively on its claim that Mertz intentionally underfilled orders. The Charging Memorandum 

never mentions Rule 527.A or Rule 527.C (much less articulates a violation of those rules in its 

actual charges), which figure prominently in the BCC's ultimate liability finding. See Tab F-6-7. 

It is true that some of the factual paragraphs of the Charging Memorandum mention Me1iz's 

assignment of the unfilled orders to his error account and the subsequent trades he used to fill the 

1 Mertz's brief lacks page numbers. For ease of reference, the Commission uses CME's convention for numbering 

the pages ofMertz's opening brief. See CME Br. at 18 n.9. 

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orders at a profit. But it is unclear whether these references were sufficient to provide Me1iz with 

adequate notice that the BCC could find a violation based solely on Mertz's failure to follow 

CME Rules 527.A and 527.C. See Tab A-5-8. In other circumstances, courts have held that 

finding liability on grounds different from those initially charged can result in reversal. See In re 

Ruffalo, 390 U.S. 544, 551 & n.4 (1968). Similarly, a deficient charging document could support 

reversal under these circumstances. 

CME argues on appeal that Mertz had adequate notice. CME suggests the factual content 

of the Charging Memorandum (but not the charges themselves), the exhibits introduced at the 

BCC hearing, and testimony at the hearing itself all referenced post-closing handling of the 

trades at issue collectively provide the requisite notice. See CME Br. at 21-29. The Commission 

does not foreclose this argument and will consider it in its ultimate disposition of this case. 

However, it is clear at this stage that the Charging Memorandum did not mention violations of 

Rule 527.A or Rule 527.C and, read as a whole, it focused on allegations that Mertz intentionally 

failed to fill the relevant orders in the open market. Tab A-11. As a result, we are concerned 

that Mertz may not have received fair notice that his compliance with post-closing outtrade 

resolution procedures was to be a potential source of independent liability. Similarly, as the 

BCC itself noted, both parties "spent considerable time" describing what happened in the pit at 

the time the orders at issue were placed. Tab F-4. It stands to reason that Mertz could 

reasonably have thought that the proceedings were limited to the question of whether he 

intentionally failed to fill the relevant orders in the open market and presented his defense 

accordingly. 

Despite our misgivings, the Commission believes that the record is insufficiently clear on 

this point to rule definitively. It is not clear on this record, for example, whether CME rules treat 

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failure to resolve outtrades properly as essentially a lesser included offense that need not be 

charged separately. See US. v. Combs, 634 F.2d 1295, 1303 (lOth Cir. 1980) (noting that "better 

practice" is that lesser included offenses not be charged as separate counts of an indictment and 

that lesser included instruction be requested at trial); cf Willson v. Belleque, 554 F.3d 816, 828 

n.3 (9th Cir. 2009) (noting that under Oregon law, charging lesser included offense in a separate 

offense is "superfluous"). There may also be other portions of the record that demonstrate that 

Mertz received sufficient notice that the BCC was considering charges stemming from his 

handling of the outtrades. Thus, we order that the parties file supplemental briefs to clarify 

whether Mertz had sufficient notice that the BCC was considering imposing liability solely for 

Mertz's improper resolution of outtrades by not complying with Rule 527.A or Rule 527.C. 

Prejudice 

A finding of insufficient notice is not, by itself, dispositive. Our precedents require a 

showing of prejudice before relief can be granted in most instances. For example, in In re Clark 

and Auciello, all parties agreed that the exchange (through its parent company) and respondent's 

counsel entered into an agreement precluding counsel from representing respondent in 

proceedings against the exchange. In the Matter of Clark, [1996-1998 Transfer Binder] Comm. 

Fut. L. Rep. (CCH) ~ 27,370 at 46,683; 1998 WL 422570, at *11-12 (C.F.T.C. July 22, 1998). 

The respondent argued that this agreement rendered the proceedings fundamentally unfair 

because he was limited in his ability to defend himself. Id. However, because the exchange 

reversed course and declined to enforce the agreement, and respondent's counsel did in fact 

represent him for a time, we found that he was not prejudiced. Id. at * 12. Similarly in Daiwa 

Sec. Am., Inc. v. Chicago Bd. ofTrade, respondents challenged the authority ofthe Board of 

Trade's Appellate Committee to sua sponte reverse the Hearing Committee's conclusion that 

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respondents' conduct did not amount to a violation ofCBOT Rule 500. Daiwa Securities 

America, et al. v. Board ofTrade of the City of Chicago, [1992-1994 Transfer Binder] Comm. 

Fut. L. Rep. (CCH) ~ 26,103 at 41,645; 1994 WL 249800, at *5 (C.F.T.C. June 9, 1994). We 

declined to grant relief in that case because the factual issues underlying the Rule 500 violation 

were "essentially subsumed" by the factual issues relevant to the Hearing Committee's Rule 504 

violation, which respondents did brief. !d. & n.ll. 

Our precedents are in harmony with the case law. Appellate courts will not disturb 

administrative proceedings on notice grounds unless there is evidence "a party is misled by an 

administrative complaint, resulting in 'prejudicial error[.]"' Abercrombie v. Clark, 920 F.2d 

1351, 1360 (7th Cir. 1991) (quoting L.G. Balfour Co. v. FTC, 442 F.2d 1, 19 (7th Cir. 1971)); St. 

Anthony Hasp. v. US. Dept. Health and Human Servs., 309 F.3d 680, 708 (lOth Cir. 2002). 

Both parties' briefs, however, are largely silent as to the issue of prejudice. Mertz 

argues repeatedly that the Charging Memorandum was deficient, but he does not explain how 

this deficiency harmed him; he does not suggest how he would have defended his post-closing 

handling of outtrades had he known this was at issue. Would he have presented additional or 

different witnesses or testimony? Would he have asked different or additional questions on cross 

examination? Were there any other ways in which he was prejudiced? For its part, CME does 

not address the question of prejudice, probably because it believes that Mertz received sufficient 

notice of the charges against him. Ordinarily, we would not excuse a failure to show prejudice. 

But because Mertz is proceeding pro se and there appears to be a serious question as to whether 

he received adequate notice, we believe supplemental briefing on the questions of notice and 

prejudice is consistent with fundamental fairness on the specific facts of this case. 

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Conclusion 

Accordingly, we order the pmiies to submit supplemental briefs of no more than 7 

double-spaced pages to be filed simultaneously no later than 30 days from the service of this 

order. The supplemental briefs should address whether Mertz received fair notice of the charges 

against him, and assuming he did not receive proper notice, whether he suffered any prejudice. 

IT IS SO ORDERED. 

By the Commission (Chairman GENSLER and Commissioners, CHILTON, O'MALIA, and 

WETJEN.) 

Melissa D. Jurgens 

Secretary of the Comn ission 

Commodity Futures Trading Commission 

Dated: January 3, 2014 

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