CFTC Releases Rule Enforcement Review of Regulatory Compliance Programs At Minneapolis Grain Exchange
Washington, D.C. – The Commodity Futures Trading Commission (Commission) has notified the Minneapolis Grain Exchange (MGEX) of the results of a rule enforcement review of MGEX’s market surveillance, audit trail, trade practice surveillance, disciplinary, and dispute resolution programs. The review, which was recently completed by the Commission’s Division of Market Oversight (Division), covered the period from December 1, 2002 through December 1, 2003 (target period).
The Division found that MGEX maintains an adequate market surveillance program. MGEX conducts daily monitoring of volume and open interest, the relationship between cash and futures prices, spread and basis relationships, size and ownership of deliverable supply, and large trader positions relative to total open interest and deliverable supply.
The Division also found that MGEX maintains an adequate audit trail program. During the target period, MGEX members maintained high rates of compliance with MGEX trade timing and recordkeeping rules. Because floor members who do not trade on the dates selected for annual audit trail reviews may not be included in the reviews, the Division recommended that MGEX implement supplementary review procedures which ensure that the trading cards and order tickets of such floor members are reviewed within a reasonable period of time.
In addition, MGEX maintains an adequate trade practice surveillance program. MGEX conducts daily review of computer-generated exception reports and daily floor surveillance to identify potential trading violations. MGEX’s inquiries and investigations were generally thorough, well-documented, and completed in a timely manner. The Division found one investigation, involving possible wash trading, that MGEX did not expand to other trading days to determine whether a pattern of violations existed. The Division, therefore, recommended that MGEX expand investigations to include additional trading days when review of exception reports suggests a wider pattern of possible violations.
The Division also found that MGEX maintains an adequate disciplinary program. MGEX referred 11 investigations involving non-substantive violations for disciplinary hearings during the target period. In several investigations, however, the disciplinary process was less than timely, due to delays in submitting matters to a disciplinary committee or in issuing charges. Therefore, the Division recommended that MGEX ensure that investigations resulting in a recommendation for disciplinary action are presented to disciplinary committees promptly, and that charges are issued promptly.
Finally, the Division found that MGEX maintains an adequate alternative dispute resolution program for market participants, with rules that ensure due process. The one customer dispute submitted to arbitration during the target period was handled in accordance with MGEX rules and procedures.
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.
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