For Release: July 29, 1998
CFTC Notifies the New York Cotton Exchange of Its
Results of a Rule Enforcement
The Commodity Futures Trading Commission (Commission) has notified the
New York Cotton Exchange (NYCE or Exchange) of the results of a
limited-scope rule enforcement review completed by the
Commission's Division of Trading and Markets (T&M). The
purpose of the review was to evaluate NYCE's trade practice
surveillance and disciplinary programs for compliance with sections
5a(a)(8) and 5a(b) of the Commodity Exchange Act and Commission
regulation 1.51. The target period for the review was September 1,
1996 to August 31, 1997.
T&M found that NYCE's trade practice investigations were
thorough, well-documented, and generally completed in a timely manner
and that investigation reports complied with Commission regulations.
In regard to NYCE's disciplinary program, T&M found that
disciplinary matters are promptly referred to disciplinary committees,
disciplinary action is taken in a reasonably timely manner, and
findings appear to be supported by the evidence. During the
review's target period, NYCE imposed a total of $50,900 in fines
and several suspensions and cease and desist orders for trade
practice, audit trail, and recordkeeping violations.
T&M also found aspects of NYCE's programs that should be
improved. First, NYCE's Compliance staff lost a number of its
investigators, diminishing NYCE's ability to perform its self
regulatory responsibilities. Second, many of the trading documents
examined by NYCE staff during the course of investigations reflected
possible recordkeeping violations which went unnoticed by Exchange
staff. Third, T&M found one disciplinary case where NYCE imposed a
fine that was inappropriately small relative to the profit made in
connection with a transaction involving a customer order.
Accordingly, T&M recommended that NYCE report its plans for hiring
additional Compliance investigators; that it identify possible
recordkeeping violations revealed during an investigation and issue
appropriate sanctions; and that it consider any profit made by a
member from his or her violative conduct in determining an appropriate
T&M's report sets forth recommendations for improvement to address these issues. NYCE will have 60 days to respond to the recommendations. Copies of the report are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21st St., N.W., Washington, D.C. 20581, (202) 418-5080.