DMO found that CSCE generally maintains an adequate trade practice surveillance program. CSCE has improved its program by examining trading activity for a time period sufficient to establish whether a pattern of trading violations may have existed, and by expanding its investigations to include examination of a subject member’s trading cards and order tickets for the entire day that suspect trades may have occurred. In addition, investigations were thorough, well documented and completed in a timely manner. However, DMO identified one aspect of CSCE’s trade practice surveillance program—its procedures for monitoring compliance with its cross trade rules—that should be enhanced. In this regard, DMO recommended that CSCE increase the number of large-size cross trades it reviews for compliance with CSCE rules, develop procedures to identify and examine brokers who execute a large number of small-size cross trades in liquid contract months, and develop an automated exception report to assist in the surveillance of cross trades. DMO also recommended that CSCE document floor surveillance for its options markets.
DMO also found that CSCE maintains an adequate audit trail program. Trade execution times are imputed algorithmically by CSCE’s automated audit trail system, and audit trail data is used routinely to assist in the identification of market abuses and to provide evidence of rule violations. In addition, DMO found that members demonstrated a high level of compliance with CSCE’s order ticket and trading card recordation requirements.
With respect to CSCE’s disciplinary program, DMO found that, with the exception of one sanction, penalties appear reasonable relative to the conduct being sanctioned. During the target period, CSCE imposed the largest monetary sanction in its history, a $125,250 fine for various trading violations. DMO also identified two cases involving trading ahead of customer orders that resulted in significantly disparate monetary sanctions, one of which it believes was insufficient. Therefore, DMO recommended that CSCE impose consistently meaningful sanctions in similar cases involving substantive trading violations.
Lastly, DMO found that CSCE has procedures in place for the fair and equitable resolution of customer-to-member and member-to-member disputes. The one customer-member and one member-member arbitration resolved during the target period conformed with CSCE’s arbitration rules and procedures, and were completed in a timely manner.
CSCE will have 60 days to respond in writing to DMO’s recommendations. Copies of the report are available from the Commission’s Office of External Affairs, Three Lafayette Centre, 1155 21st Street N.W., Washington, DC 20581, (202) 418-5080, or by accessing the Commission’s website at www.cftc.gov. Media ContactsAlan Sobba (202) 418-5080R. David Gary (202) 418-5085Office of External Affairs Related DocumentCSCE Rule Enforcement Review
