For Release: October 18, 1996
The Commodity Futures Trading Commission (Commission) has notified the Minneapolis Grain Exchange (Exchange) of the results of a rule enforcement review completed by the Commission's Division of Trading and Markets (Division). This review follows up on a September 1995 review of the Exchange.
The 1995 review was conducted, in part, to comply with section 8e of the Commodity Exchange Act (Act), which requires that the Commission, at least once every two years, to the extent practicable, assess whether each exchange's trade monitoring system satisfies certain statutory requirements. The 1995 review made several recommendations to improve the MGE's trade practice surveillance program and one recommendation relating to market surveillance.
As a result of the 1995 review, the Commission deferred deciding whether to grant MGE a low-volume exchange exemption, which is provided by section 5a(b)(5) of the Act, from heightened audit trail standards that went into effect in October 1995. The current review, which used the period of October 1, 1995, to April 1, 1996, as its ``target period,'' evaluated the Exchange's responses to those recommendations and re-assessed the appropriateness of granting an exemption.
In the follow-up review of the Exchange's trade practice programs, the Division found that the Exchange responded by implementing written guidelines for initiating investigations, opening more substantive trade practice investigations, eliminating the backlog of old investigations and improving the timeliness of recently completed investigations.
The Division also found that the Exchange had complied with the market surveillance recommendation, which pertained to retaining documentation of Exchange periodic reviews of exchange of futures for physicals transactions. The Division found that over the target period the Exchange maintained an average monthly accuracy rate of member-recorded execution times of 93 percent.
The Division made one recommendation for the Exchange's trade practice program. Specifically, the Division recommended that the Exchange modify its procedures for opening trade practice investigations to give staff more latitude to exercise their judgment in the identification of potential violative trades and patterns of trading abuses and, to the extent practicable, review all transactions which may be indicative of a substantive trading violation.
Based upon this follow-up review, the Commission has determined to grant the low-volume exchange exemption, contingent upon confirmation from the MGE that it has implemented the Division's recommendation. The Exchange will have 60 days to respond to the recommendation.
Copies of the Division's report are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5080.