The Commodity Futures Trading Commission (CFTC) has notified the Chicago Mercantile Exchange (CME) of the results of a rule enforcement review of the CME’s audit trail, trade practice surveillance, disciplinary, and dispute resolution programs. The review, recently completed by the CFTC’s Division of Market Oversight (Division), covered the period from October 1, 2004 to October 1, 2005 (target period).
The Division found that the CME maintains an adequate audit trail program for both electronic and open outcry trading, which enables the CME to reconstruct trading efficiently and effectively, identify customer and market abuses, and provide evidence of rule violations. CME monitors individual member and member firm compliance with recordkeeping rules through routine audit trail reviews and has adequate procedures for safe storage of audit trail data.
The Division also found that the CME maintains an adequate trade practice surveillance program. The CME monitors all trading through a combination of visual, video, and automated computer surveillance, and conducts investigations capable of detecting violations of Exchange rules. The 172 investigations closed by CME during the target period were thorough and well-documented, included well-founded analyses, and were completed in a timely manner.
CME also maintains an adequate disciplinary program, which enables CME to take effective disciplinary action when rule violations are suspected. CME’s disciplinary rules ensure due process, and give CME authority to discipline, suspend, or terminate members or market participants found to have committed rule violations. CME completed the 30 disciplinary cases closed during the target period in a timely fashion, and imposed sanctions that appear reasonable relative to the violations alleged and the evidence presented.
Finally, CME maintains an adequate alternative dispute resolution program for market participants and exchange members, with rules that ensure due process. The 36 arbitrations closed during the target period were conducted in conformance with CME’s arbitration rules.
Based on these findings, the Division made no recommendations for further improvements to CME’s self-regulatory program.
Copies of the report are available from the Commission’s Office of External Affairs, Three Lafayette Centre, 1155 21st Street N.W., Washington, D.C. 20581, 202-418-5080, or by accessing the CFTC’s website at www.cftc.gov.
