DISCIPLINARY PROGRAM 

RULE ENFORCEMENT REVIEW 

OF 

CBOT, CME, COMEX, AND NYMEX

Division of Market Oversight

November 30, 2017 
2 

RULE ENFORCEMENT REVIEW OF

THE CBOT, CME, COMEX, AND NYMEX

DISCIPLINARY PROGRAM

Commodity Futures Trading Commission – Division of Market Oversight

Table of Contents 

I. Rule Enforcement Review Scope.......................................................................................... 3

II. Summary of Findings, Recommendations, and Deficiencies ......................................... 5

A. Findings without Recommendations or Deficiencies .................................................. 5

B. Findings with Recommendations .................................................................................. 6

III. Appendix A ......................................................................................................................... 9
3 

I. Rule Enforcement Review Scope

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

of the disciplinary program of the Chicago Board of Trade (“CBOT”), the Chicago Mercantile 

Exchange (“CME”), the Commodity Exchange, Inc. (“COMEX”), and the New York Mercantile 

Exchange, Inc. (“NYMEX”) (collectively, the “Exchanges”), wholly-owned subsidiaries of CME 

Group, Inc. (“CME Group”).

1

 The Division’s review of the Exchanges’ disciplinary program 

covered the period from July 15, 2015 to July 15, 2016 (“target period”). The Division reviewed 

the Exchanges’ compliance with Core Principle 13 (Disciplinary Procedures)

2

 under Section 

5(d) of the Commodity Exchange Act (“Act” or “CEA”),

3 and the Commission’s related 

regulations codified in Commission regulations 38.700–712, which relate to an exchange’s 

disciplinary procedures.

To evaluate the Exchanges’ disciplinary program, and their compliance with Core 

Principle 13 and Commission regulations 38.700–712, Division staff interviewed compliance 

officials and staff from CME Group’s Market Regulation Department (“MRD”), which provides 

compliance, enforcement, and other self-regulatory services to the Exchanges, pursuant to 

 

1 The Division’s rule enforcement reviews seek to present an analysis of an exchange’s overall compliance

capabilities during the period under review. Such reviews target those 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 effectively address all exchange

rule violations or other deficiencies.

The findings and recommendations in this rule enforcement review are limited to the Exchanges and their 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 Core Principle 13 - Disciplinary Procedures: The board of trade shall establish and enforce disciplinary procedures 

that authorize the board of trade to discipline, suspend, or expel members or market participants that violate the rules 

of the board of trade, or similar methods for performing the same functions, including delegation of the functions to 

third parties.

3 7 U.S.C. 1 et seq. 
4 

Regulatory Services Agreements. The Division also analyzed responsive documents produced 

by the Exchanges’ staff, including the following: 

• disciplinary case logs and files;

• organizational charts and summaries of personnel and staffing; 

• summaries of procedures designed to prevent conflicts of interest; 

• minutes of disciplinary committees, Floor Conduct Committee, Board of 

Directors, Executive Committee, and Market Regulation Oversight Committee 

(“MROC”) meetings held during the target period; and 

• compliance procedures manuals and handbooks, disciplinary rules, and other 

overviews of MRD’s disciplinary procedures. 

The Division analyzed the Exchanges’ disciplinary program to determine whether the 

program is in compliance with the core principle and Commission regulations stated above, and 

whether there are any deficiencies or recommendations for the program. For purposes of this 

report, a deficiency is an area where the Division believes an exchange is not in compliance with 

a Commission regulation and must take corrective action and a recommendation concerns an 

area where the Division believes the exchange should improve its compliance program.4

 

Positively, the Division found that the Exchanges maintain experienced enforcement staff and a 

generally adequate disciplinary program to demonstrate compliance with Core Principle 13 and 

Commission regulations 38.700–709 and 38.711. However, the Division made four 

recommendations relating to compliance with Commission regulation 38.710, and one 

recommendation relating to compliance with Commission regulation 38.712. 

 

4 The Division notes that MRD is primarily responsible for administering each Exchanges’ disciplinary program. 

Therefore, any recommendation or deficiency related to MRD is a recommendation or deficiency that applies to all 

of the Exchanges.
5 

The Division provided the Exchanges with an opportunity to review and comment on a 

draft of this report on October 16, 2017. On October 24, 2017, Division staff conducted an exit 

conference with the Exchanges’ officials to discuss the report’s findings and recommendations. 

II. Summary of Findings, Recommendations, and Deficiencies 

A. Findings without Recommendations or Deficiencies 

 

1. Enforcement Staff (Commission regulation 38.701) 

• The Enforcement Group (“Enforcement Group” or “Enforcement”) is 

responsible for prosecuting all disciplinary cases for the Exchanges. The 

Enforcement Group is led by an experienced management team that includes a 

Global Enforcement Counsel in New York and two regional Enforcement 

Counsels, one in New York and one in Chicago. During the target period, the 

Enforcement Group consisted of 13 Enforcement Attorneys. 

2. Core Principle 13 (Commission regulation 38.700); Disciplinary Panels 

(Commission regulation 38.702); Notice of Charges (Commission regulation 

38.703); Right to Representation (Commission regulation 38.704); Answer to 

Charges (Commission regulation 38.705); Denial of Charges and Right to 

Hearing (Commission regulation 38.706); Hearings (Commission regulation 

38.707); Decisions (Commission regulation 38.708); and Final Decisions 

(Commission regulation 38.709).

• The Division found that the Exchanges have sufficient disciplinary program 

rules and procedures to demonstrate compliance with Core Principle 13 under 

Section 5(d) of the CEA, and Commission regulations 38.700, 38.702–709. 

The Exchanges’ rules are designed to ensure due process for disciplinary 

proceedings, and give the Exchanges the authority to discipline, suspend, or 

permanently bar members or market participants found to have committed 

rule violations. 

3. Disciplinary Sanctions (Commission regulation 38.710) 

• The Division reviewed 85 of the 151 closed disciplinary cases (18 for CBOT, 

33 for CME, nine for COMEX, 16 for NYMEX, and nine for multiple CME 

Group Exchanges) and found that, subject to the recommendations below 

relating to Commission regulation 38.710 and with the exception of fines that 

were reduced due to respondents’ claim of financial hardship, sanctions 

imposed during the target period were reasonable relative to the violations 

alleged and the evidence presented. In addition, the Division found that the 

Exchanges’ Business Conduct Committees (“BCC”) consistently considered 
6 

the respondent’s disciplinary history and any customer harm when 

determining sanctions. 

• In the 85 closed cases reviewed by the Division, the Exchanges assessed a 

total of 80 fines in 63 cases. The imposed fines totaled $4,307,500, ranging

from $5,000 to $300,000. The Exchanges also assessed a total of $7,935,470 

in disgorgement from 17 respondents, ranging from $1,787.50 to $2,938,545. 

In addition, the Exchanges ordered four respondents to pay a total of $287,536 

in customer restitution; issued suspensions for 63 individuals ranging from 15 

days to eight years; and imposed permanent bars on membership against ten

respondents.5

4. Warning Letters (Commission regulation 38.711) 

• The Division found that the Exchanges’ maintain a warning letter policy 

prohibiting the issuance of more than one warning letter per rolling 12-month 

period for the same violation, as required by Commission regulation 38.711. 

Of the 85 cases reviewed by the Division, the Enforcement Group issued a 

total of 17 warning letters in 12 cases. None of the warning letter recipients 

received more than one warning letter during the target period for the same 

violation. 

B. Findings with Recommendations

1. Disciplinary Sanctions (Commission regulation 38.710)

• The Exchanges issued two types of suspensions during the target period: (1) 

suspensions of all direct and indirect access to the trading floor or electronic 

trading or clearing platform (“direct and indirect access suspensions”); and (2) 

suspensions of direct access to the trading floor or electronic trading or 

clearing platform (“direct access-only suspensions”). Of the 63 suspensions 

issued during the target period, 55 were direct and indirect access suspensions, 

while eight were direct access-only suspensions. 

• The Division reviewed the seven cases that resulted in eight direct access-only 

suspensions and found that MRD did not document or explain how the facts 

and circumstances of these cases supported the issuance of direct access-only 

suspensions, or the factors MRD considered in determining the appropriate 

length of the direct access-only suspensions. 

• Recommendation: MRD should document and explain each instance 

where it recommends or supports the issuance of a direct access-only 

suspension. Such explanation should articulate the specific facts and 

 

5 MRD defines disgorgement as illicit profits returned to the Exchanges by the respondent and restitution as payment 

to a party financially injured by the respondent’s actions. 
7 

circumstances of the case that support the issuance of a direct accessonly suspension, and how MRD determined the appropriate length of 

the suspension term. 

 

• The Exchanges largely rely on futures commission merchants (“FCMs”) to 

ensure that suspended individuals do not electronically access the Exchanges. 

The Exchanges can conduct ad hoc queries of “Tag 50 IDs” to identify 

whether any Tag 50 IDs associated with suspended individuals are trading, but 

such queries are not done on a routine basis. 

• Recommendation: The Exchanges should either monitor for 

prohibited trading activity by suspended individuals or firms, such as 

trading by Tag 50 IDs that belong to suspended individuals, or 

establish a rule explicitly requiring FCMs to monitor for such activity. 

• In certain cases, Enforcement takes into account a respondent’s financial 

condition in supporting a lesser financial penalty. The Division reviewed five 

cases during the target period in which financial condition was considered and 

found that Enforcement did not clearly articulate how it determined the 

appropriate sanction based on the circumstances.

• Recommendation: The Exchanges should document and explain how 

they determine the appropriate sanction where a respondent’s 

financial condition justifies a lesser financial penalty. 

• Of the 85 disciplinary cases reviewed by the Division, warning letters were 

issued to 17 respondents in 12 cases. In addition to reviewing those 12 cases, 

the Division selected for further review 10 cases, four complaints, and 14 

research files in which warning letters were issued during the target period. In 

total, the Division found that in three cases, two complaints and one research 

file, the Exchanges should have taken disciplinary action in lieu of issuing a 

warning letter. 

• Recommendation: The Exchanges should take appropriate 

disciplinary action in lieu of issuing a warning letter in future cases 

that involve misconduct similar to the cases that were identified by the 

Division in this Report.

2. Additional Sources for Compliance (Commission regulation 38.712) 

• The Exchanges maintain minutes for each BCC meeting. For each case listed 

on the agenda, the minutes indicate whether a settlement offer was accepted 

by the BCC. The minutes do not capture any additional detail regarding the 

BCC’s decision to accept or reject the settlement offer. For settlement offers 

that are accepted by the BCC, the Panel’s rationale for accepting the offer is 

based on the factors set forth in the MRD Supporting Memo, and is therefore 
8 

documented. However, if the BCC decides to reject a settlement offer 

recommended by Enforcement, the rationale for this decision is not 

documented anywhere in the case file, either while the matter is pending or 

once it has been resolved, by either Enforcement or the BCC. 

• Recommendation: The Exchanges should ensure that the BCC’s 

rationale for rejecting a settlement offer is documented. Such 

documentation may be completed once the matter has been resolved 

and after the appeal period for the matter has lapsed. 

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

contained in the Compliance Matrix in Appendix A. 
 9 

III. Appendix A

Compliance Matrix

CFTC Regulation Findings Regarding the Exchanges’ Compliance

Target Period 7/15/15 – 7/15/16

Deficiencies/Recommendations6

Core Principle 13 – Disciplinary Procedures

§ 38.700 Core Principle 13

The board of trade shall establish and 

enforce disciplinary procedures that 

authorize the board of trade to 

discipline, suspend, or expel 

members or market participants that 

violate the rules of the board of trade, 

or similar methods for performing the 

same functions, including delegation 

of the functions to third parties.

The Division found that the Exchanges maintain adequate 

disciplinary procedures to investigate potential rule violations, 

prosecute cases, and discipline members or market participants who 

are found to have violated the Exchanges’ rules. 

No deficiencies or recommendations.

§ 38.701 Enforcement Staff

A designated contract market must 

establish and maintain sufficient 

enforcement staff and resources to 

effectively and promptly prosecute 

possible rule violations within the 

disciplinary jurisdiction of the 

contract market. A designated 

contract market must also monitor the 

size and workload of its enforcement 

staff annually, and ensure that its 

The Enforcement Group (“Enforcement Group” or “Enforcement”), 

within CME Group’s Market Regulation Department (“MRD”), is 

responsible for prosecuting all disciplinary cases and is led by an 

experienced management team that includes a Global Enforcement 

Counsel in New York and two regional Enforcement Counsels, one 

in New York and one in Chicago. During the target period, the 

Enforcement Group consisted of 13 Enforcement Attorneys.7 

To determine whether the Enforcement Group maintains sufficient 

staff to promptly prosecute possible rule violations, the Division 

No deficiencies or recommendations.

 

6 This column contains: (1) deficiency findings where the Division believes the Exchange was not in compliance with a Commission regulation and must take 

corrective action and (2) recommendations where the Division identifies areas for improvement.

7 The Executive Director and the two regional Directors have management responsibilities but also serve as Enforcement Attorneys; therefore, they are included 

in the Enforcement Attorney total. The Division notes that this is an increase from the staffing levels observed during the November 21, 2014 CME Group 

Disciplinary RER, which covered the target period of April 1, 2012 to March 31, 2013. 
 10 

enforcement resources and staff are at 

appropriate levels. The enforcement 

staff may not include either members 

of the designated contract market or 

persons whose interests conflict with 

their enforcement duties. A member 

of the enforcement staff may not 

operate under the direction or control 

of any person or persons with trading 

privileges at the contract market. A 

designated contract market's 

enforcement staff may operate as part 

of the designated contract market's 

compliance department.

reviewed 85 of the 151 disciplinary cases closed during the target 

period (18 for CBOT, 33 for CME, nine for COMEX, 16 for 

NYMEX, and nine for multiple CME Group Exchanges). Of the 

85 reviewed cases, 39 cases were closed in less than 12 months, 29 

cases took between 12 and 24 months to close and 15 cases took 

more than 24 months to close. The Division found there were 

mitigating circumstances that justified the delay in these cases, 

such as complex fact patterns and multiple respondents. 

§ 38.702 Disciplinary Panels

A designated contract market must 

establish one or more disciplinary 

panels that are authorized to fulfill 

their obligations under the rules of 

this subpart. Disciplinary panels must 

meet the composition requirements of 

part 40 of this chapter, and must not 

include any members of the 

designated contract market's 

compliance staff or any person 

involved in adjudicating any other 

stage of the same proceeding.

Each of the Exchanges maintains two disciplinary panels, a 

Probable Cause Committee (“PCC”) and a Business Conduct 

Committee (“BCC”). The PCC receives and reviews investigation 

reports prepared by MRD and determines whether there is a 

reasonable basis for finding that a violation of exchange rules may 

have occurred which warrants the issuance of charges. The BCC is 

responsible for conducting settlement hearings and contested 

hearings based on charges issued by the PCC. Each committee is 

composed of five people: a panel chair, two exchange members (or 

employees of exchange member firms), and two non-members. At 

least one of the exchange member panelists must be from the 

exchange where the case originated.8 

 

No deficiencies or recommendations.

§ 38.703 Notice of Charges 

If compliance staff authorized by a 

designated contract market or a 

designated contract market 

The Division found that the notice of charges issued during the 

target period adequately provided the elements required by 

Commission regulation 38.703. If a PCC Panel decides to issue 

charges, it directs the Enforcement Group to issue a notice of 

No deficiencies or recommendations.

 

8 CBOT, CME, COMEX, and NYMEX Rules 402.A and 406.
 11 

disciplinary panel determines that a 

reasonable basis exists for finding a 

violation and that adjudication is 

warranted, it must direct that the 

person or entity alleged to have 

committed the violation be served 

with a notice of charges and must 

proceed in accordance with the rules 

of this section. A notice of charges 

must adequately state the acts, 

conduct, or practices in which the 

respondent is alleged to have 

engaged; state the rule, or rules, 

alleged to have been violated (or 

about to be violated); and prescribe 

the period within which a hearing on 

the charges may be requested. The 

notice must also advise that the 

charged respondent is entitled, upon 

request, to a hearing on the charges.

charges stating, among other things, the conduct in which the 

respondent is alleged to have engaged, as well as the alleged rule 

violations. The notice of charges also advises the respondent that 

the matter will be heard by a BCC Panel and includes the time and 

place of the hearing.9

§ 38.704 Right to 

Representation

Upon being served with a notice of 

charges, a respondent must have the 

right to be represented by legal 

counsel or any other representative of 

its choosing in all succeeding stages 

of the disciplinary process, except 

any member of the designated 

contract market's board of directors 

or disciplinary panel, any employee 

of the designated contract market, or 

any person substantially related to the 

Notice of charges issued by the Enforcement Group state that the 

respondent has the right to be represented by legal counsel. In 

addition, the Exchanges’ procedures and rules also address the 

respondent’s right to counsel.10

No deficiencies or recommendations.

 

9 CBOT, CME, COMEX, and NYMEX Rule 407.B.

10 CBOT, CME, COMEX, and NYMEX Rules 407.B and 408.A.
 12 

underlying investigations, such as 

material witness or respondent.

§ 38.705 Answer to Charges

A respondent must be given a 

reasonable period of time to file an 

answer to a notice of charges. The 

rules of a designated contract market 

governing the requirements and 

timeliness of a respondent's answer to 

charges must be fair, equitable, and 

publicly available.

Notice of charges issued by the Enforcement Group give the 

respondent 21 days to answer the notice. In addition, the answer 

period and procedures governing the respondent’s answer to 

charges are publicly disclosed in the Exchanges’ rulebooks.11

No deficiencies or recommendations.

§ 38.706 Denial of Charges 

and Right to Hearing 

In every instance where a respondent 

has requested a hearing on a charge 

that is denied, or on a sanction set by 

the disciplinary panel, the respondent 

must be given an opportunity for a 

hearing in accordance with the 

requirements of §38.707 of this part.

The Exchanges’ rules provide for a hearing on charges that are 

denied.12 The Division did not identify any instances during the 

target period where a respondent’s request for a hearing was 

denied. 

No deficiencies or recommendations.

§ 38.707 Hearings

(a) A designated contract market 

must adopt rules that provide for the 

following minimum requirements for 

any hearing conducted pursuant to a 

notice of charges:

(1) The hearing must be fair, must be 

Disciplinary hearings are conducted in accordance with the 

Exchanges’ rules:

• Hearings are held before members of the BCC. No formal 

rules of evidence apply, but hearings are structured and 

must be fair.13

• The respondent may request and review, in advance of the 

hearing, records or other evidence in possession of the 

Exchanges.14

No deficiencies or recommendations.

 

11 CBOT, CME, COMEX, and NYMEX Rule 407.C.

12 CBOT, CME, COMEX, and NYMEX Rule 407.B and C. 

13 CBOT, CME, COMEX, and NYMEX Rule 408.
 13 

conducted before members of the 

disciplinary panel, and must be 

promptly convened after reasonable 

notice to the respondent. The formal 

rules of evidence need not apply; 

nevertheless, the procedures for the 

hearing may not be so informal as to 

deny a fair hearing. No member of 

the disciplinary panel for the matter 

may have a financial, personal, or 

other direct interest in the matter 

under consideration.

(2) In advance of the hearing, the 

respondent must be entitled to 

examine all books, documents, or 

other evidence in the possession or 

under the control of the designated 

contract market. The designated 

contract market may withhold 

documents that are privileged or 

constitute attorney work product, 

documents that were prepared by an 

employee of the designated contract 

market but will not be offered in 

evidence in the disciplinary 

proceedings, documents that may 

disclose a technique or guideline used 

in examinations, investigations, or 

enforcements proceedings, and 

documents that disclose the identity 

• Enforcement Group staff participates in the hearings and 

presents the case at each hearing.15

• Respondents are entitled to appear personally and may call 

and cross-examine witnesses.16

• The Exchanges maintain rules that require persons within 

their jurisdiction who are called as witnesses to participate 

in the hearing and produce any evidence they may have.17

• All hearings are recorded and such recordings may be 

requested by the respondent. If a transcript is requested, the 

respondent is responsible for the cost of producing the 

transcript.18

 14 CBOT, CME, COMEX, and NYMEX Rule 408.B.

15 CBOT, CME, COMEX, and NYMEX Rule 408.D.

16 CBOT, CME, COMEX, and NYMEX Rule 408.D.

17 CBOT, CME, COMEX, and NYMEX Rules 408.A and 418.

18 CBOT, CME, COMEX, and NYMEX Rule 408.D.
 14 

of a confidential source.

(3) The designated contract market's 

enforcement and compliance staffs 

must be parties to the hearing, and 

the enforcement staff must present 

their case on those charges and 

sanctions that are the subject of the 

hearing.

(4) The respondent must be entitled 

to appear personally at the hearing, 

must be entitled to cross-examine any 

persons appearing as witnesses at the 

hearing, and must be entitled to call 

witnesses and to present such 

evidence as may be relevant to the 

charges.

(5) The designated contract market 

must require persons within its 

jurisdiction who are called as 

witnesses to participate in the hearing 

and to produce evidence. It must 

make reasonable efforts to secure the 

presence of all other persons called as 

witnesses whose testimony would be 

relevant.

(6) If the respondent has requested a 

hearing, a copy of the hearing must 

be made and must become a part of 

the record of the proceeding. The 

record must be one that is capable of 

being accurately transcribed; 

however, it need not be transcribed 

unless the transcript is requested by 

Commission staff or the respondent, 

the decision is appealed pursuant to 

the rules of the designated contract 
 15 

market, or is reviewed by the 

Commission pursuant to section 8c of 

the Act or part 9 of this chapter. In all 

other instances a summary record of 

a hearing is permitted.

(b) [Reserved]

§ 38.708 Decisions 

Promptly following a hearing 

conducted in accordance with 

§38.707 of this part, the disciplinary 

panel must render a written decision 

based upon the weight of the 

evidence contained in the record of 

the proceeding and must provide a 

copy to the respondent. The decision 

must include:

(a) The notice of charges or a 

summary of the charges;

(b) The answer, if any, or a summary 

of the answer;

(c) A summary of the evidence 

produced at the hearing or, where 

appropriate, incorporation by 

reference of the investigation report;

(d) A statement of findings and 

conclusions with respect to each 

charge, and a complete explanation 

of the evidentiary and other basis for 

such findings and conclusions with 

respect to each charge;

(e) An indication of each specific rule 

that the respondent was found to have 

violated; and

The Division found that the BCC promptly rendered written 

decisions following hearings during the target period. The Division 

also found that each BCC decision for the five contested and 10 

default hearings reviewed by the Division included a summary of 

the charges, any answer by a respondent, a summary of the 

evidence produced at the hearing, a statement of findings and an 

explanation regarding the basis for such findings, the specific 

rule(s) violated by the respondent, and a declaration of the 

sanctions imposed against the respondent. 

No deficiencies or recommendations.
 16 

(f) A declaration of all sanctions 

imposed against the respondent, 

including the basis for such sanctions 

and the effective date of such 

sanctions.

§ 38.709 Final Decisions

Each designated contract market 

must establish rules setting forth 

when a decision rendered pursuant to 

this section will become the final 

decision of such designated contract 

market.

A respondent who is found guilty of an offense or is otherwise 

aggrieved by a decision of or sanction imposed by the BCC may 

appeal to a hearing panel of the Board of Directors within 10 days 

of receiving notice of the decision or sanction, provided that the 

sanction imposed is greater than $10,000 or a five-day suspension. 

In addition, MRD may appeal a BCC decision or sanction, or a 

PCC decision not to issue requested charges, to a hearing panel of 

the Board within 10 days of receiving notice of the decision. Board 

hearing panels consist of a director appointed by the Chairman of 

the Board to serve as chairman of the panel, and two additional 

directors, one of whom must be a non-member. Appellate Panel 

decisions are deemed a decision of the Board and are the final 

decision of the exchange.19

No deficiencies or recommendations.

§ 38.710 Disciplinary 

Sanctions 

All disciplinary sanctions imposed by 

a designated contract market or its 

disciplinary panels must be 

commensurate with the violations 

committed and must be clearly 

sufficient to deter recidivism or 

similar violations by other market 

Fines, Restitution and Disgorgement Levied During the Target 

Period 

The Exchanges closed 151 disciplinary cases (a majority of which 

were resolved via settlement agreement). The Division reviewed 

85 of the 151 closed disciplinary cases and found that, with the 

exception of fines that the Exchanges’ reduced due to respondents’ 

claim of financial hardship,20 fines imposed during the target period 

were reasonable relative to the violations alleged and the evidence 

See recommendations below.

 

19 CBOT, CME, COMEX, and NYMEX Rule 411. On December 14, 2016, the Exchanges increased the threshold for an appeal to $25,000 or a 10-day 

suspension. 

20 See discussion below regarding Financial Condition. 
 17 

participants. All disciplinary 

sanctions, including sanctions 

imposed pursuant to an accepted 

settlement offer, must take into 

account the respondent's disciplinary 

history. In the event of demonstrated 

customer harm, any disciplinary 

sanction must also include full 

customer restitution, except where 

the amount of restitution, or to whom 

it should be provided, cannot be 

reasonably determined.

presented. In addition, the Division found that the Exchanges’ 

BCC consistently considered the respondent’s disciplinary history 

and any customer harm when determining sanctions. In the 85 

cases reviewed by the Division, the Exchanges assessed a total of 

$4,307,500 in fines ranging from $5,000 to $300,000. 

• CBOT Fines totaled $540,000 and ranged from $5,000 – 

$100,000. 

• CME Fines totaled $1,480,000 and ranged from $5,000 – 

$125,000. 

• COMEX Fines totaled $855,000 and ranged from $5,000 – 

$175,000. 

• NYMEX Fines totaled $1,432,500 and ranged from $7,500 

– $300,000. 

In addition, the Exchanges ordered four respondents to pay a total 

of $287,536 in customer restitution; and assessed $7,935,470 in 

disgorgement ranging from $1,787.50 to $2,938,545. 

Suspensions Issued During the Target Period 

The Exchanges issued suspensions for 63 individuals ranging from 

15 days to eight years; and imposed permanent bars on membership 

against 10 respondents. The Exchanges issued two types of 

suspensions: (1) suspensions of all direct and indirect access to the 

trading floor or electronic trading or clearing platform (“direct and 

indirect access suspensions”); and (2) suspensions of direct access 
 18 

to the trading floor or electronic trading or clearing platform 

(“direct access-only suspensions”).21 Of the 63 suspensions issued 

during the target period, 55 were direct and indirect access 

suspensions, while eight were direct access-only suspensions. 

Direct Access-Only Suspension Cases

The Exchanges stated that it imposes direct access-only 

suspensions on a limited, case-by-case basis and offered the 

following as examples of when the Exchanges have used direct 

access-only suspensions: (1) the respondent’s violative conduct is 

not related to the respondent’s supervisory responsibilities at a firm 

or trading on behalf of a customer; and/or (2) the respondent is 

solely responsible for executing customer orders and direct and 

indirect access suspension would affect the respondent’s 

customer’s ability to trade. The Exchanges have also asserted that 

direct access-only suspensions would only be appropriate where the 

violation is one that generally involves direct trading by a 

respondent, and where it would be difficult, if not impossible, for 

the respondent to engage in the violation via indirect trading.

The Division reviewed the seven cases that resulted in eight direct 

access-only suspensions and found that MRD did not document or 

explain how the facts and circumstances of these cases supported 

the issuance of direct access-only suspensions, or the factors MRD 

considered in determining the appropriate length of the direct 

access-only suspensions. Without this supporting analysis, it is not 

clear how the Exchanges value the penalty associated with a direct 

access-only suspension. The Division believes the BCC needs this 

information to ensure it issues sanctions that are commensurate 

See recommendations below.

Recommendation

MRD should document and explain 

each instance where it recommends 

or supports the issuance of a direct 

access-only suspension. Such 

explanation should articulate the 

specific facts and circumstances of 

the case that support the issuance of a 

 

21 In this context, trading indirectly would permit another individual, such as a broker or another authorized individual, to enter trades on behalf of the suspended 

individual. 
 19 

with the violation committed by the respondent. This information 

will also help ensure that MRD and the BCC apply direct accessonly suspensions in a consistent manner. Finally, the information 

may be relevant to the MROC as it reviews the adequacy of the 

Exchanges’ disciplinary program and the BCC’s performance 

under the Acceptable Practices for Core Principle 16.22 

Monitoring Suspended Individuals 

Once the Exchanges issue suspensions, they largely rely on futures 

commission merchants (“FCMs”) to ensure that suspended 

individuals do not electronically access the Exchanges. The 

Exchanges publicly disseminate notices of all disciplinary actions. 

Therefore, all FCMs that are signed up to receive such notices are 

notified if any of their customers have been suspended. The 

Exchanges do not ensure that FCMs receive notices of all 

disciplinary actions, nor do the Exchanges’ rules obligate FCMs to 

restrict the access of suspended individuals or firms. The 

Exchanges can conduct ad hoc queries of “Tag 50 IDs”23 to 

identify whether any Tag 50 IDs associated with suspended 

individuals are trading. This is not routinely done, however, as the 

Exchanges believe such monitoring would be of limited value 

given that suspended individuals or firms would be more inclined 

to attempt to access the Exchanges through a new Tag 50 ID. 

The Division believes that the effectiveness of a sanction depends, 

in part, on an exchange’s ability to adequately monitor and enforce 

such sanction. For disciplinary fines and disgorgement and 

restitution amounts ordered by the BCC, the Exchanges monitor to 

direct access-only suspension, and 

how MRD determined the 

appropriate length of the suspension 

term. 

Recommendation

The Exchanges should either monitor 

for prohibited trading activity by 

 

22 The Exchanges have adopted the Acceptable Practice’s safe harbor requirements to comply with Core Principle 16, which provides that the ROC shall include 

in its annual report a review the performance of an exchange’s disciplinary committees and panels.

23 A Tag 50 ID is a unique identifier of the individual or an Automated Trading System (“ATS”) that entered the order into CME Globex. 
 20 

ensure that payment has been received by the date specified in the 

notice of decision. Any respondent that fails to make such 

payments forfeits direct and indirect access to the Exchanges until 

payment has been received, and may also be subject to further

sanction under Rule 432.S.24 The Exchanges do not monitor for 

trading activity by suspended individuals, and therefore cannot 

effectively enforce suspension bans. 

Financial Condition of Respondents 

In certain cases, Enforcement takes into account a respondent’s 

financial condition in supporting a lesser financial penalty. To 

demonstrate financial hardship, respondents must complete a 

Statement of Financial Condition form detailing the respondent’s 

assets, liabilities, and cash flow information, and expenses, as well 

as provide financial statements, tax forms, and pay stubs. 

As stated above, the Division found that fines imposed during the 

target period were reasonable relative to the violations alleged and 

the evidence presented, with the exception of five cases in which 

Enforcement supported a lesser financial penalty due to a 

respondent’s financial condition.25 The Division reviewed these 

five cases and found that while Enforcement noted that it 

considered the respondent’s financial condition, it did not clearly 

explain how it determined the appropriate sanction based on the 

circumstances. It is difficult for the Division to ascertain whether 

these sanctions are adequate and comparable to other sanctions 

based on similar financial considerations without such information. 

Similarly, the absence of such explanation may impact the 

MROC’s ability to review adequacy of the Exchanges’ disciplinary 

suspended individuals or firms, such 

as trading by Tag 50 IDs that belong 

to suspended individuals, or establish 

a rule explicitly requiring FCMs to 

monitor for such activity. 

Recommendation

The Exchanges should document and 

explain how it determines the 

appropriate sanction where a 

respondent’s financial condition 

justifies a lesser financial penalty. 

 

24 CBOT, CME, COMEX, and NYMEX Rule 444.

25 See discussion under Fines, Restitution and Disgorgement Levied During the Target Period. 
 21 

program and the BCC’s performance under the Acceptable 

Practices for Core Principle 16.

Warning Letter Cases

Warning letters may be issued from MRD, Enforcement, and at the 

direction of the BCC. Pursuant to Rule 407, warning letters issued 

upon the conclusion of an investigation “shall not constitute either 

the finding of a Rule violation or a penalty,” 26 as the authority to 

make findings on rule violations rests solely with the BCC.

27 Of 

the 85 disciplinary cases reviewed by the Division, warning letters 

were issued to 17 respondents in 12 cases. In addition to reviewing 

those 12 cases, the Division selected for further review 10 cases,28

four complaints, and 14 research files in which warning letters were 

issued during the target period.29 In total, the Division found that 

in three cases, two complaints and one research file, the Exchanges 

should have taken disciplinary action in lieu of issuing a warning 

letter. 

Wash Trades 

In Case 12-9055, an FCM, acting on behalf of a customer, placed 

orders with a floor broker to buy and sell 250 expiring Live Cattle 

futures contracts, for purposes of freshening long futures position 

See recommendations below.

 

26 CBOT, CME, COMEX, and NYMEX Rule 407.

27 CBOT, CME, COMEX, and NYMEX Rule 402.A.

28 In nine of the 10 cases, warning letters were issued by MRD and did not result in referral to Enforcement. One case was referred to Enforcement and resulted 

in a warning letter. 

29 Cases are matters for which the Exchanges determined a reasonable indication of potential rule violations existed at the time the matters are initiated; 

complaints are matters initiated via a customer complaint; and research files are matters for which the Exchanges determined further review was merited. 
 22 

dates and delaying delivery. The Executive Vice President 

(“EVP”) and Principal30 stated to the customer that the method by 

which he could freshen the positions was a “grey area.” In 

addition, another employee at the FCM manually overrode the 

default settings of the FCM’s back office processing system in 

order to facilitate the transactions. Although Enforcement 

conceded that the EVP knew or should have known that that the 

Exchanges prohibit wash trading for the purpose of freshening 

positions, Enforcement nonetheless believed that the violation was 

a systemic failure by the firm and not solely by the EVP, as it 

related to training, education, and knowledge of Exchange rules. 

Enforcement was also concerned that taking disciplinary action 

against the EVP would amount to “double-dipping.” Accordingly, 

the Exchange fined the firm $70,000 for violating Rules 432.W 

(Failure to Diligently Supervise), 534 (Wash Trades Prohibited), 

and 807 (Open Long Positions During Delivery Month); fined the 

broker who executed the trades $20,000 and imposed a 10 day 

direct access-only suspension for violating Rule 534; and issued the 

EVP a warning letter in connection with Rule 534. 

In Case 15-0127, an IB entered a series of orders on behalf of his 

customers that resulted in self-matched trades for five accounts. 

The subject trades were executed on December 22, 2014, for 55 

contracts of the August 2015 Feeder Cattle futures, and were 

executed to realize gains. Although MRD determined that the IB

should have known the activity in question violated Rule 534, it 

nonetheless issued a warning letter. MRD concluded that the 

length of time the orders were sitting, which was less than 20 

seconds, demonstrated that it was not the IB’s intent to immediately 

offset the trades. MRD also considered that the subject activity

was an isolated incident and that the IB did not have a disciplinary 

See recommendations below.

 

30 The introducing broker (“IB”) was registered with NFA as an associated person. 
 23 

history. 

In RSRH 15-3541, an ATS malfunction resulted in self-matched 

trades for a total of 3,448 contracts. The FCM stated that the ATS 

was not configured to send the appropriate Self-Match Prevention 

Identifier31 on each order message. Although the firm operating 

the ATS identified the issue after the self-match activity occurred, 

it did not implement a fix for four days. MRD issued a warning 

letter in connection with Rules 534 and 576 (Identification of 

Globex Terminal Operators), and the associated Market Regulation 

Advisory Notices (“MRANs”). In issuing a warning letter, MRD 

considered that the firm had an adequate system for detecting and 

rectifying ATS malfunctions. 

The Division believes the conduct at issue in these warning letters 

warranted disciplinary action. Wash trades affect market integrity 

by creating an illusion of legitimate, bona fide market interest. 

Such conduct may erode the public’s confidence in the futures 

market. These concerns, together with the facts and circumstances 

of each case, lead the Division to believe that warning letters issued 

in the above-mentioned cases were not commensurate with the 

violations committed. The EVP in Case 12-9055 knew, or should 

have known, that the wash trades he was facilitating were 

inappropriate. To mitigate concerns of “double-dipping,” the 

Exchanges could have taken action against both the firm and the 

EVP, in proportion to the rule violations they committed. In Case 

15-0127, the Division believes that the IB, who is registered with 

the National Futures Association (“NFA”), should have known that 

his orders would result in self-trades given that the trades were in 

an illiquid market and in the back-months contracts, and exposed to 

the market for less than 20 seconds. In RSRH 15-3541, the 

See recommendations below.

 

31 CME Group offers optional functionality that allows an executing firm to prevent the matching of orders for accounts with common ownership if both the buy 

and sell orders contain the same Self-Match Prevention Identifier and Executing Firm ID.
 24 

Division is concerned that the individual(s) authorized to turn off 

the ATS were not notified of the malfunction for three days after 

the self-match activity occurred, and did not implement a fix for 

four days after the malfunction. Additionally, because some of the 

trading activity occurred in back-year contracts, the wash trades 

that resulted from the ATS malfunction accounted for almost a 

quarter of the trading in those contracts on a given day—a 

significant amount of wash volume. 

Disruptive Trading and Spoofing 

Complaint 16-2463 originated as a complaint regarding an 

individual who entered and cancelled 13 50-lot orders in the CBOT 

March 2016 Wheat futures contract during the pre-open sessions 

priced lower than the prevailing Indicative Opening Price (“IOP”)

on two trade dates. On one of these dates, the respondent’s trading 

activity resulted in numerous fluctuations in the IOP that were 

transmitted to the entire trading community and prompted another 

trader to issue a complaint with MRD. MRD found two additional 

instances of similar activity in the March 2016 Corn futures market, 

amounting to a total of eight 50-lot offers that were entered and 

cancelled, resulting in changes in the IOP. The respondent 

indicated to MRD that he did not intend to trade the orders, but 

instead hoped to discern other participants’ automated trading 

strategies. MRD issued a warning letter for Rule 575 (Disruptive 

Practices Prohibited) and the associated MRAN, based on (a) the 

brief and isolated nature of these incidents; (b) that no similar 

activity was identified; and (c) that the activity ceased once the 

Exchange reached out to the respondent. 

Case 14-9934, involved a respondent who entered 250 30-lot orders 

(“large orders”) in the March 2014 Copper futures contract. Over 

the course of seven days, the respondent fully cancelled 100 

See recommendations below.
 25 

percent of his large orders. The individual also entered 4,840 small 

orders (under 30-lot), and cancelled 82.93 percent of these orders. 

The purpose of cancelling these orders was to obtain fills on his 

small orders resting on the other side of the order book. The 

respondent openly admitted to MRD that he had engaged in 14 

instances of spoofing activity, but stated that he was not aware at 

the time that such activity was prohibited. The respondent ceased 

this trading activity once his clearing firm asked him to terminate 

the spoofing trading behavior. MRD issued a warning letter for 

Rules 432.B2 (General Offenses)32 and 575 because the subject 

trading activity comprised only 5.4 percent of the respondent’s 

large orders and 1.12 percent of the respondent’s total traded 

contracts, and that the spoofing pattern took place sporadically over 

a two-month period. 

Complaint 15-2353 originated as a complaint regarding an 

individual who entered 46 orders of 100 contracts or greater in the 

October 2015 Reformulated Blendstock for Oxygenate Blending 

(“RBOB”) Gasoline futures market, and subsequently cancelled all 

46 orders. Smaller orders resting on the opposite side of the market 

traded as a result of the cancellations. The respondent explained to 

MRD that there was no reason or purpose for the order placement 

other than he was “just playing around” and that the orders were 

really not meant to be executed. MRD issued a warning letter for

Rule 575 on because the small number of contracts initially 

involved, the activity occurred on a single date, and the respondent 

ceased the trading activity once he was contacted. 

The Division believes the conduct at issue in these warning letters 

warranted disciplinary action. Disruptive trading and spoofing can 

cause significant harm to the marketplace. Entering and canceling 

orders in quick succession without the intent to trade creates a false 

See recommendations below.

 

32 Rule 432.B.2 makes it an offense “to engage in conduct or proceedings inconsistent with just and equitable principles of trade.” 
 26 

sense of supply and demand, which market participants may rely 

upon when making trading decisions. Similarly, non-bona fide 

order entry during the pre-open session may cause the IOP to 

fluctuate and reflect artificial prices. These concerns, together with 

the facts and circumstances of each case, lead the Division to 

believe that warning letters issued in the above-mentioned cases 

were not commensurate with the violations committed. In 

particular, the Division does not necessarily agree with MRD that 

the trading activity at issue Case 14-9934 and Complaint 15-2353 

was de minimus. The Division is concerned that the respondents in 

both cases knowingly entered non-bona fide orders and openly 

admitted to such activity. The Division also does not necessarily 

agree that the instances in Complaint 16-2463 were isolated given 

that they occurred in two separate markets and affected 21 50-lot 

orders. 

The Division believes that disciplinary action in the abovementioned cases would have served as a deterrent not only to the 

respondents, but also other market participants. Public notification 

of disciplinary sanctions sends the message to other market 

participants that such conduct will not be tolerated. Furthermore, 

sanctions become part of a respondent’s public disciplinary history, 

and must be taken into consideration in determining sanctions for 

any future violative activity. The Exchanges failure to take 

disciplinary action in the above-mentioned cases means that the 

respondents’ misconduct will not be reflected in their public 

disciplinary history. 

Recommendation

The Exchanges should take 

appropriate disciplinary action in lieu 

of issuing a warning letter in future 

cases that involve misconduct similar 

to the cases that were identified by 

the Division in this Report.

§ 38.711 Warning Letters

Where a rule violation is found to 

have occurred, no more than one 

warning letter may be issued per 

rolling 12-month period for the same 

The Exchanges maintain a warning letter policy prohibiting the 

issuance of more than one warning letter per rolling 12-month 

period for the same violation. Of the 85 cases reviewed by the 

Division, the Enforcement Group issued a total of 17 warning 

letters in 12 cases. None of the warning letter recipients received 

No deficiencies or recommendations.
 27 

violation. more than one warning letter during the target period for the same 

violation. 

§ 38.712 Additional Sources 

for Compliance 

Applicants and designated contract 

markets may refer to the guidance in 

appendix B of this part to 

demonstrate to the Commission 

compliance with the requirements of 

§38.700 of this part.

The Division notes that the Exchanges’ rules provide, among other 

things, that: 

• Any charge in the notice of charges not denied in whole or 

in part shall be deemed admitted by the BCC.33

• The BCC shall have the authority to take emergency 

actions.34

• MRD may issue summary fines that shall not be less than 

$1,000 per offense and shall not exceed $5,000 per offense 

for individuals or $10,000 per offense for firms for the 

inaccurate, incomplete or untimely submission of data, 

records or information.35

Documentation of Settlement Offers Rejected by the BCC

During the target period, the Exchanges permitted respondents to 

submit settlement offers that were supported by the Enforcement 

Group (“supported settlements”) as well as settlement offers that 

were not supported by the Enforcement Group (“unsupported 

settlements”).36 Respondents were permitted to submit supported 

settlement offers any time prior to a hearing and were not limited to 

the number of offers that could be submitted, whereas only one 

See recommendation below.

 

33 CBOT, CME, COMEX, and NYMEX Rule 407.C.

34 CBOT, CME, COMEX, and NYMEX Rule 402.C.

35 CBOT, CME, COMEX, and NYMEX Rule 512.B.

36 As of December 14, 2016, the Exchanges eliminated the use of unsupported settlement offers. 
 28 

unsupported settlement offer was permitted to be presented after 

the PCC had issued charges. 

Prior to the settlement hearing for either a supported or 

unsupported settlement offer, the Enforcement Group prepares and 

distributes to the BCC panel a “BCC Hearing Packet,” which 

includes the settlement offer, a list of comparable cases, and a draft 

of the Notice of Disciplinary Action. BCC Hearing Packets for 

supported settlements also include a memorandum in support of the 

settlement offer (“MRD Supporting Memo”) which outlines trading 

activity at issue, findings from the investigation, the respondent’s 

disciplinary history, and the factors that the Enforcement Group 

considered in recommending settlement. BCC Hearing Packets for 

unsupported settlements include a memorandum in opposition of 

the settlement offer (“MRD Opposition Memo”) which outlines the 

factors for MRD’s opposition to the settlement offer, as well as 

copies of the charging memorandum and the respondent’s answer 

to the charges. 

The Exchanges maintain minutes for each BCC meeting. These 

minutes include the date, time and location of the hearing, a list of 

cases on the agenda, and a list of the BCC members and MRD staff 

present. For each case listed on the agenda, the minutes indicate 

whether a settlement offer was accepted by the BCC. The minutes 

do not capture any additional detail regarding the BCC’s decision 

to accept or reject the settlement offer. For settlement offers that 

are accepted by the BCC, the Panel’s rationale for accepting the 

offer is based on the factors set forth in the MRD Supporting 

Memo, and is therefore documented. However, if the BCC decides 

to reject a settlement offer recommended by Enforcement, the 

rationale for this decision is not documented anywhere in the case 

file, either while the matter is pending or once it has been resolved, 

by either Enforcement or the BCC. 

See recommendation below.
 29 

The Exchanges assert that Enforcement staff can often surmise the 

BCC’s reasons for rejecting the settlement offer based on the types 

of questions raised by at the hearing. While such dialog at the 

hearing may provide Enforcement staff some insight into the 

BCC’s decision-making, there may be additional factors raised 

during the BCC’s deliberation to which Enforcement staff is not 

privy. Therefore, the Division believes that documenting the 

BCC’s basis for rejecting a supported settlement offer is necessary 

to ensure that the Enforcement Group clearly understands all the 

factors that formed the basis of the BCC’s decision, and can use 

this insight when recommending settlement offers involving similar 

facts and circumstances. Documenting this information will also 

promote consistency among disciplinary panels, since the views of 

each BCC panel may differ based on the views of the individual 

members. Finally, such documentation is necessary to ensure that 

the MROC has the information to review the adequacy of the 

Exchanges disciplinary program and the BCC’s performance under 

the Acceptable Practices for Core Principle 16.

Recommendation

The Exchanges should ensure that 

the BCC’s rationale for rejecting a 

settlement offer is documented. Such 

documentation may be completed 

once the matter has been resolved 

and after the appeal period for the 

matter has lapsed.