For Release: March 18, 1997
Washington--The Commodity Futures Trading Commission has notified the Chicago Board of Trade (CBT) of the results of a recent rule enforcement review completed by the Commission's Division of Trading and Markets. The 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 review covers the CBT's self-regulatory programs from the period of April 1, 1994 to September 30, 1996.
The Division reviewed the CBT's market surveillance, trade practice surveillance and disciplinary action programs. The review also includes an assessment of the CBT's trade monitoring system and compliance with trading card and order ticket recordkeeping requirements. The Division did not assess certain matters that recently have been or are being separately addressed by Commission staff, including the CBT's compliance with the heightened audit trail requirements of Section 5a(b)(3) of the Act and the CBT's disciplinary response to the March 1996 wheat expiration.
The Division found that the CBT maintains an adequate market surveillance program for monitoring contract expirations, but that several market surveillance investigations took an unduly long time to complete. Consequently, the Division recommended that CBT take appropriate steps to improve significantly the timeliness of such investigations.
The Division found that CBT has improved the effectiveness of its program for enforcing its trading card and order ticket recordkeeping requirements. In this regard, the Division found that CBT members were generally in compliance with these requirements. The Division recommended, however, that CBT enhance its program by reviewing all of the trades reflected on trading cards and floor orders that are requested from clearing firms in the course of back office audits for compliance with Regulation 1.35 recordkeeping requirements. The Division also recommended that CBT take steps to improve compliance with the Commission's document collection requirements and investigate members who are consistently in noncompliance with audit trail recordkeeping requirements for possible substantive trading violations and issue sanctions as appropriate.
The Division found that CBT maintains an adequate trade practice surveillance program, which includes computer-assisted surveillance, routine trade practice investigations, and floor surveillance. With only a few exceptions, the Division found that CBT conducted thorough trade practice investigations that were adequately documented. The Division also found, however, as it did with market surveillance investigations, that the CBT needs to improve significantly the timeliness of its investigations. Therefore, the Division recommended that CBT institute measures to hasten the completion of investigations.
Finally, the Division found that CBT disciplinary committees' initial review of investigation reports and issuance of preliminary charges or reminder letters were completed within the time frames set forth in the Commission's regulations. In addition, the decisions were rendered in a timely manner, generally within one to three months of issuance of charges. The Division made no recommendations in this area.
Copies of the review are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, DC 20581, (202) 418-5080.