• NOTICE OF DISCIPLINARY ACTION

      • #
      • NYMEX 15-0213-BC-1
      • Effective Date
      • 28 April 2016
    • MEMBER:

      MORGAN STANLEY CAPITAL GROUP INC.

      NYMEX RULE VIOLATION: EXCHANGE RULE 538. EXCHANGE FOR RELATED POSITIONS

      The following transactions shall be permitted by arrangement between parties in accordance with the requirements of this rule: Exchange for Physical (“EFP”) – A privately negotiated and simultaneous exchange of an Exchange futures position for a corresponding cash position. Exchange for Risk (“EFR”) – A privately negotiated and simultaneous exchange of an Exchange futures position for a corresponding OTC swap or other OTC instrument. Exchange of Options for Options (“EOO”) – A privately negotiated and simultaneous exchange of an Exchange option position for a corresponding OTC option position or other OTC instrument with similar characteristics. For purposes of this rule, an EFP, EFR or EOO shall be referred to as an Exchange for Related Position (“EFRP”).

      C. Related Position

      The related position component of an EFRP must be the cash commodity underlying the Exchange contract or a by-product, a related product or an OTC derivative of such commodity underlying the Exchange contract or a by-product, a related product or an OTC derivative instrument of such commodity that has reasonable degree of price correlation to the commodity underlying the Exchange contract. The related position component of an EFRP may not be a futures contract or an option on a futures contract. Each EFRP requires a bona fide transfer of ownership of the underlying asset between the parties or a bona fide, legally binding contract between the parties consistent with relevant market conventions for the particular related position transaction.

      The execution of an EFRP transaction may not be contingent upon the execution of another EFRP or related position transaction between the parties where the transaction result in the offset of the related position without the incurrence of market risk that is material in the context of the related position transactions.

      FINDINGS:

      Pursuant to an offer of settlement Morgan Stanley Capital Group Inc. (“Morgan Stanley”) presented at a hearing on April 26, 2016 in which Morgan Stanley neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found it had jurisdiction over Morgan Stanley pursuant to NYMEX Rules 400 and 402 and that on January 5, 2015 and March 3, 2015, Morgan Stanley executed several Exchange for Related Position (“EFRP”) transactions in various energy products in which the related position for each transaction was offset to avoid material market risk. These transactions were transitory in nature and therefore non-bona fide.

      The Panel found that, as a result, Morgan Stanley violated Exchange Rule 538.C (“Exchange for Related Positions – Related Position”).

      PENALTY:

      In accordance with the settlement offer, the Panel ordered Morgan Stanley to pay a fine to the Exchange in the amount of $50,000.