For Release: November 5, 1997
CFTC Notifies the New York Futures Exchange of the
Results of a Rule Enforcement Review
The Commodity Futures Trading Commission (Commission) has notified the New York Futures Exchange (NYFE or Exchange), a subsidiary of the New York Cotton Exchange, of the results of a rule enforcement review completed by the Commission's Division of Trading and Markets (Division). The review was conducted, in part, to comply with Section 8e of the Commodity Exchange 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 Division's review, which focused on the period of September 1, 1994, to September 30, 1996, found that NYFE's audit trail, trade practice surveillance and disciplinary programs generally were adequate.
The Exchange's one-minute trade timing accuracy rate during the review period was 94 percent. In addition, Exchange members maintained a high degree of compliance with order ticket and trading card recordkeeping requirements and with trading card collection requirements. Although order ticket and trading card reviews generally were completed in a timely manner, the Division found six order ticket reviews that took 10 months to complete. In this regard, the Division recommended that the Exchange hasten the completion of all such reviews in the future.
The Division also found that the Exchange has an adequate trade practice surveillance program. The Exchange routinely used its automated trade monitoring system and conducted investigations and floor surveillance in an integrated manner to identify potential trading violations. Generally, investigations are thorough, well-documented and completed in a timely manner. The Division has no recommendations for improvement in this area at this time.
Finally, with regard to NYFE's disciplinary program, no matters were referred to the Exchange's disciplinary committees for possible substantive trading violations during the target period. Consequently, the Division was unable to evaluate the timeliness of NYFE's disciplinary process or the sufficiency of sanctions imposed. The Division did find that NYFE imposes progressively higher summary fines on recidivists for recordkeeping violations. However, the Division also found four members who exhibited unusually low compliance with the Commission's order ticket timestamping requirements, but who were not referred to a disciplinary committee for further action. In this regard, the Division recommended that the Exchange take disciplinary action against such members, regardless of its practice of warning first time offenders.
The Division's report sets forth these recommendations for improvement. The Exchange will have 60 days to respond to the recommendations. 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.