CFTC Releases Rule Enforcement Review of Regulatory
WASHINGTON, D.C. -- The Commodity Futures Trading Commission (Commission) has notified the Chicago Board of Trade (CBT) of the results of a rule enforcement review of CBT’s 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 October 1, 2003 to October 1, 2004 (target period).
The Division found that CBT maintains an adequate audit trail program. CBT retains a complete electronic record of all orders entered and transactions executed on its electronic trading system, e-cbot, which currently accounts for approximately 70% of CBT’s total volume. These records enable CBT to reconstruct trading efficiently and effectively. The majority of futures orders for open outcry trades at CBT are now transmitted to the pit electronically and processed through the Exchange’s new Denali trade processing system, which creates an electronic trade data record similar to that maintained for electronic trades. CBT also maintains a traditional paper audit trail for other open outcry orders. CBT monitors individual member and member firm compliance with recordkeeping rules through routine audit trail reviews. CBT also has adequate procedures for safe storage of audit trail data.
The Division also found that CBT maintains an adequate trade practice surveillance program. The Exchange’s automated surveillance systems for both open outcry and electronic trading enable CBT investigators to conduct focused reviews of exception reports and identify instances of possible trade practice violations. CBT monitors all trading activity through various types of investigations, and conducts a sufficient amount of floor surveillance. CBT closed 200 trade practice investigations during the target period. The Division found that the investigations were thorough and well-documented, and were completed in a generally timely manner.
In addition, CBT maintains an adequate disciplinary program, with rules that ensure due process for disciplinary proceedings. During the target period, CBT took final disciplinary action in 34 cases, imposed sanctions that appear reasonable relative to the violations alleged and the evidence presented, and completed disciplinary proceedings in a generally timely fashion.
Finally, the Division found that CBT maintains an adequate alternative dispute resolution program for market participants and exchange members, with rules that provide fair and equitable procedures. The 33 arbitrations filed during the target period were conducted in conformance with the Exchange’s arbitration rules, and those completed were completed in a generally timely manner.
Based on these findings, the Division made no recommendationsfor further improvements to CBT’s self-regulatory program.
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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