For Release: June 21, 2006
Washington, D.C. – The Commodity Futures Trading Commission (Commission) has notified the Kansas City Board of Trade (Exchange) of the results of a rule enforcement review completed by the Commission’s Division of Market Oversight (Division). The Division evaluated the Exchange’s compliance with core principles under the Commission’s regulations that relate to trade practice surveillance, market surveillance, audit trail, disciplinary, and dispute resolution programs. The target period for the review was August 1, 2004 to August 1, 2005.
The Division found that the Exchange maintains adequate market surveillance, trade practice surveillance and dispute resolution programs, and made no recommendations in these areas. The Exchange monitors prices, volume, open interest, deliverable supplies and market news on a daily basis, and heightens surveillance of the expiring month prior to first notice day. All contracts expired in an orderly manner during the target period. With regard to trade practice surveillance, the Exchange uses automated surveillance and floor surveillance to identify possible trading violations, and targets its more active members for routine trade practice investigations. The Exchange’s investigations were completed in a timely manner, well documented, and, in large part, thorough. In addition, Exchange rules provide customers and members with procedures for arbitration that are fundamentally fair and equitable. The Division found that the one customer arbitration case heard during the target period was handled in conformance with Exchange rules and procedures, and was adequately documented.
The Division also found, however, that the staffing levels of the Exchange’s Department of Audits and Investigations should be increased in order to keep pace with the Exchange’s record volume. In addition, the Division found that back-up tapes containing confidential trade register data are stored each night in an unsecured off-site location, and that restore procedures and tapes containing historical data are not periodically tested. Accordingly, the Division’s report sets forth recommendations for enhancing the Exchange’s safe storage procedures. Finally, with respect to the Exchange’s disciplinary program, the Division recommended that the Exchange impose sanctions that serve as an effective deterrent against repeat offenders of its audit trail recordkeeping rules.
The Exchange will have 60 days to respond in writing to the Division’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.
R. David Gary
Last Updated: March 18, 2007