July 31, 2017
CFTC Releases Rule Enforcement Review of the North American Derivatives Exchange
Washington, DC — The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) announced today that it has issued the results of a rule enforcement review of the North American Derivatives Exchange Inc. (Nadex). The review, which covered a one-year target period, evaluated Nadex’s compliance with elements of Core Principles 2 (Compliance with Rules) and 12 (Protection of Markets and Market Participants), including compliance with relevant CFTC regulations related to these Core Principles.
DMO found that Nadex allocates staff, information technology, and other resources to comply with Core Principles 2 and 12. Nadex also maintains a rulebook, and written policies and procedures for its staff. However, DMO made certain recommendations and identified certain deficiencies as noted below.
DMO made three recommendations regarding Nadex’s: (i) capacity to detect and investigate rule violations; and (ii) its compliance staff and resources. DMO also identified three deficiencies relating to Nadex’s trade practice investigations. DMO found that Nadex was deficient with respect to its compliance with CFTC regulation 38.158, which requires an exchange to conduct an investigation upon the discovery or receipt of information indicating that a rule violation may have occurred. DMO found that, in certain instances, Nadex failed to adequately investigate or document potential rule violations by its members or market makers.
In addition, although Core Principle 7 (Availability of General Information) was not a focus of the review, DMO also identified a deficiency related to this core principle. DMO found that during the target period, Nadex failed to disclose relevant information regarding its market maker programs, as required by CFTC regulation 38.401(a). Nadex has since cured this deficiency pursuant to a rule filing effective July 2017.
The report is available on the CFTC’s website at Nadex Rule Enforcement Review. Printed copies are also available at CFTC’s Office of Public Affairs, Three Lafayette Centre, 1155 21st Street N.W., Washington, DC 20581.
Last Updated: July 31, 2017