For Release:†† October 29, 1998
CFTC Notifies the Kansas City Board of Trade of the
Result of a
Rule Enforcement Review
The Commodity Futures Trading Commission (Commission) has notified the Kansas City Board of Trade (KCBT) of the results of a rule enforcement review completed by the Commissionís Division of Trading and Markets (T&M). The purpose of the review was to evaluate KCBTís market surveillance, trade practice surveillance, audit trail, and disciplinary programs for compliance with the Commodity Exchange Act and Commission regulations. The target period for the review was January 1, 1997 to December 31, 1997.
T&M found that KCBT has an adequate market surveillance program that includes, among other things, daily monitoring of volume, open interest, price changes, spread relationships, position concentrations among clearing members, large trader positions, and deliverable supplies. In regard to KCBTís audit trail program, T&M found that the Exchange captures essential data on trades, and that member-recorded one-minute trade execution times have an accuracy rate of approximately 95 percent. Additionally, KCBT members had a high rate of compliance with the Commissionís recordkeeping requirements. T&M also found that KCBT has an adequate trade practice surveillance program. KCBTís trade practice investigations were thorough, well-documented, and completed in a timely manner. Investigation reports generally complied with Commission regulations. Finally, those disciplinary matters referred to disciplinary committees were handled in a timely manner, and findings appeared to be supported by the evidence.
T&M did find two aspects of KCBTís program that should be improved. First, final investigation reports prepared by KCBT staff did not always include a sufficient explanation of the staffís rationale for closing certain cases. Second, several KCBT members continued to receive reminder and/or warning letters regarding recordkeeping violations, rather than being sanctioned for their recidivism. Accordingly, T&M recommended: (1) that KCBT ensure that all investigation reports contain a clear articulation of the staffís rationale for not pursuing further certain potential trade practice violations discovered during routine trade practice investigations; and (2) that KCBT impose sanctions on members who repeatedly violate the same or similar rules.
KCBT will have 60 days to respond to the Divisionís recommendations. Copies of the report are available from the Commissionís Office of Public Affairs, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5080 or by accessing the Kansas City Board of Trade's report available on the Commission's website, www.cftc.gov.