Release on: October 2, 2003
CFTC Releases Rule Enforcement Review of the
BrokerTec Futures Exchange
Washington, D.C. – The Commodity Futures Trading Commission (Commission) has notified the BrokerTec Futures Exchange (BTEX) of the results of a rule enforcement review of BTEX’s market surveillance, audit trail, trade practice surveillance, and disciplinary programs. These programs are conducted for BTEX on a contract basis, under BTEX’s supervision, by the National Futures Association (NFA). The review, which was recently completed by the Commission’s Division of Market Oversight (Division), covered the period from November 30, 2001 to November 30, 2002 (target period), BTEX’s first year of operation.
The Division found that NFA has adequate programs in place to monitor BTEX’s markets. With regard to market surveillance, on a daily basis, NFA reviews futures and cash prices, volume, open interest, clearing member and large trader positions, and market news relating to each BTEX contract. There were no problematic contract expirations during the target period.
In conducting trade practice surveillance, NFA uses various exception reports to identify possible trading violations, and monitors trading on a real-time basis. BTEX’s audit trail includes a complete electronic record of all entries into its matching engine and the details of every trade, allowing BTEX to reconstruct trading efficiently and effectively. The inquiries and investigations conducted by NFA during the target period were generally thorough, well-documented, and completed in a timely manner. No violations of BTEX rules were found, and thus no disciplinary proceedings were commenced.
Lastly, in reviewing BTEX’s program for enforcing its block trading and exchange of futures for physicals (EFP) rules, the Division found that NFA did not examine an adequate number of block trades or EFPs to ensure compliance with BTEX rules. Accordingly, the Division recommended that BTEX review its program for monitoring such transactions, and implement modifications necessary to ensure examination of an adequate number of randomly selected block trades and EFPs.
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.