CHICAGO Feb 24 CME Group Inc, the
largest U.S. futures exchange operator, on Monday announced
fines against nine traders and clearing members for violating
rules governing a type of transaction that U.S. regulators
expressed concerns about last year.
CME, owner of the Chicago Mercantile Exchange and New York
Mercantile Exchange and others, took action against a range of
market participants for trades involving Exchange for Related
Position transactions, or EFRPs.
The actions came after the U.S. Commodity Futures Trading
Commission in August said CME's procedures for monitoring EFRP
transactions were inadequate and required "significant and
It was inevitable that CME "was going to feel obligated to
crack down on EFRP transactions following its CFTC rule review,"
said Gary DeWaal, a consultant and former general counsel for
"Now it has happened," he said in a note about the "plethora
of EFRP fines."
A CME spokeswoman had no immediate comment.
Traders use EFRP to exchange an over-the-counter swap or a
cash position into an equivalent futures contract. The exchange
takes place away from the public marketplace and is reported to
CME or CBOT once complete. Regulators want to make sure traders
do not use the transactions to hide otherwise prohibited
CME fined Deutsche Bank AG $25,000 for failing to
maintain required documents regarding EFRP transactions on three
trade dates between Aug. 2012 and June 2013, according to a
disciplinary notice. The bank, which did not admit to rule
violations, was pleased to resolve the matter, a spokeswoman
CME fined Guardian International Gold Corp, a Toronto-based
gold trader, $15,000 for improperly being on both sides of EFRP
transactions on July 30, 2012 and for failing to maintain
certain documents, according to a disciplinary notice.
"For us, it was a total Mickey Mouse, ridiculous thing that
happened," Guardian International Gold President Dino Vannicola
said about the violations. "We're a small company. Really it was
just a technical error on a small deal."
The company negotiated the size of the fine with CME staff,
Vannicola said. The employee responsible for the violations was
fired, he added.
The CFTC last year said it was concerned that, from Nov. 1,
2010 to Oct. 31, 2011, CME staff had opened only 16 EFRP cases
when nearly half a million transactions took place at the
Chicago Mercantile Exchange and Chicago Board of Trade.
The commission in 2012 fined Morgan Stanley $5
million for misusing EFRPs over an 18-month period in 2008 and
2009 at the Chicago Mercantile Exchange and Chicago Board of