For Release: June 28, 2002
CFTC NOTIFIES THE CHICAGO MERCANTILE EXCHANGE OF
ITS RESULTS OF A RULE ENFORCEMENT REVIEW
The Commodity Futures Trading Commission (Commission) has notified the Chicago Mercantile Exchange (CME) of the results of a rule enforcement review completed by the Commission’s Division of Trading and Markets (T&M). The report was the first rule enforcement review to be issued under the core principles set forth in the Commodity Futures Modernization Act of 2000 and the Commission’s regulations implementing those core principles. The report focuses on three core principles that relate to CME’s audit trail, trade practice surveillance, and disciplinary programs. Core Principle (2) - Compliance with Rules, and Core Principle (12) - Protection of Market Participants, relate to surveillance, enforcement, and disciplinary procedures used by a contract market to protect market participants from abusive trading practices. Core Principle (10) – Trade Information, relates to the maintenance of an audit trail that can be used to assist a contract market in the identification and prosecution of customer and market abuses. The target period for the review was January 1 to July 1, 2001.
T&M found that CME generally maintains an adequate audit trail enforcement program that consists of annual back office audits of clearing member firms to review compliance with recordkeeping requirements and the accuracy of data entry, and a daily automated review of floor member compliance with trade recordation requirements. T&M made recommendations concerning timely collection of trading cards used to record trades for other members present on the floor, and notification of clearing firms of data entry errors detected pursuant to CME’s daily review of member compliance with recordkeeping rules.
T&M also found that CME maintains an adequate trade practice surveillance program through the use of visual, video, and automated computer surveillance for monitoring and enforcing compliance with CME’s rules. T&M made recommendations for improvement that relate to the documentation of investigations not referred to a disciplinary committee, the documentation of continued monitoring of members’ trading activity when an investigation is closed with such a recommendation, and the documentation of interview tapes associated with a particular investigation file.
Finally, T&M found that CME maintains an adequate disciplinary program. Disciplinary matters are promptly referred to a disciplinary committee, disciplinary proceedings are completed in a timely manner, and findings appear to be supported by the evidence. Further, penalties imposed appear reasonable relative to the conduct sanctioned and are in amounts likely to deter further violations. T&M recommended, however, that CME document a disciplinary committee’s reasoning for disagreeing with charges recommended by CME staff.
CME will have 60 days to respond to these and other recommendations set forth in the report. 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 Commission’s website at www.cftc.gov.