For Release: March 4, 2003
CFTC Releases Rule Enforcement Review of the Kansas City Board of Trade
Washington, D.C. - The Commodity Futures Trading Commission (Commission) has notified the Kansas City Board of Trade (KCBT) of the results of a rule enforcement review completed by the Commission’s Division of Market Oversight (Division). The Division assessed KCBT’s compliance with core principles under the Commission’s regulations that relate to audit trail, trade practice surveillance, disciplinary, and dispute resolution programs. The review also covered core principles that relate to exchange governance. The target period for the review was June 1, 2001 to June 1, 2002.
The Division found that KCBT maintains adequate self-regulatory programs in each of the areas reviewed. KCBT’s audit trail program provides for the recording and safe storage of trade information in a manner that allows staff to use the information to assist in the prevention of customer and market abuses and to provide evidence of rule violations. In addition, KCBT members maintain a high level of compliance with one minute trade timing and order ticket and trading card recordkeeping requirements.
The Division also found that KCBT uses computerized surveillance, floor surveillance, and routine trade practice investigations to monitor for possible trading abuses. KCBT’s investigations were generally thorough, well documented and completed in a timely manner. However, the Division recommended that KCBT increase the scope of investigations in which a large number of audit trail violations are identified to determine whether those violations may have facilitated substantive trading violations. The Division also recommended that KCBT increase the amount of trading activity it examines beyond that which it routinely reviews in those cases where a member has previously been disciplined for similar wrongdoing.
The Division also found that KCBT maintains an adequate disciplinary program. During the target period, five cases were referred to a disciplinary committee and each resulted in monetary sanctions. Two of the five cases involved substantive trading violations, such as noncompetitive trading, and three involved recordkeeping violations. In addition, KCBT customers are provided voluntary dispute resolution through arbitration rules that the Division found to be fair and equitable. Arbitration procedures also are provided for member-to-member disputes. There were no arbitrations during the target period.
Finally, with regard to exchange governance, the Division found that KCBT has adequate procedures for enforcing membership fitness rules and for addressing potential conflicts of interest that may arise in the decision-making process involving any Board or disciplinary committee matter. The Division also found that KCBT’s Board adequately reflects a broad array of market participants to ensure that various interests are fairly represented.
KCBT 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.