EXCHANGE RULES: NYMEX RULE 432. GENERAL OFFENSES
It shall be an offense:
B.1. to engage in fraud or bad faith;
B.2. to engage in conduct or proceedings inconsistent with just and equitable principles of trade;
C. to engage in dishonest conduct;
L.1. to fail to appear before the Board, Exchange staff or any investigative or hearing committee at a duly convened hearing, scheduled staff interview or in connection with any investigation.
NYMEX RULE 530 (PRIORITY OF CUSTOMERS' ORDERS)
A member shall not buy (sell) a futures contract, buy (sell) a call option or sell (buy) a put option for his own account, an account in which he has a direct or indirect financial interest, or an account over which he has discretionary trading authority when he is in possession of an executable order for another person to buy (sell) a futures contract, buy (sell) a call option or sell (buy) a put option in the same product, regardless of the venue of execution. All contract months in a given futures product and all options on the futures product, in addition to any corresponding alternative sized (mini or micro) futures or options contracts on a given product, shall be considered the same product for the purposes of this rule.
NYMEX RULE 532 (DISCLOSING ORDERS PROHIBITED)
With the exception of transactions executed in accordance with the requirements of Rules 526, 538 and 539, no person shall disclose another person's order to buy or sell except to a designated Exchange official or the CFTC, and no person shall solicit or induce another person to disclose order information. An order for pit execution is not considered public until it has been bid or offered by open outcry. No person shall take action or direct another to take action based on non-public order information, however acquired. The mere statement of opinions or indications of the price at which a market may open or resume trading does not constitute a violation of this rule.
NYMEX RULE 576 (IDENTIFICATION OF GLOBEX TERMINAL OPERATORS)
Each Globex terminal operator shall be identified to the Exchange, in the manner prescribed by the Exchange, and shall be subject to Exchange rules. If user IDs are required to be registered with the Exchange, it is the duty of the clearing member to ensure that registration is current and accurate at all times. Each individual must use a unique user ID to access Globex. In no event may a person enter an order or permit the entry of an order by an individual using a user ID other than the individual’s own unique user ID.
Following an evidentiary hearing on the merits on April 5, 2016, a Panel of the NYMEX Business Conduct Committee (“Panel”) issued a written decision finding that Jon Ruggles (“Ruggles”), a non-member, was subject to the jurisdiction of the Exchange pursuant to NYMEX Rules 402 and 418 for the time period of August 20, 2012 through December 10, 2012 and thus the Panel had the authority to impose monetary fines and order for disgorgement of profits for violations of Exchange rules during that timeframe. The Panel also found that pursuant to Legacy Rule 402.D., it had the authority to suspend or ban Ruggles from trading on the Exchange for rule violations occurring before August 20, 2012. The Panel found that during the time period from April 18, 2012 through December 10, 2012 (“relevant time period”), Ruggles repeatedly abused his trading discretion given to him by his employer for personal gain by intentionally trading his employer’s account opposite two personal accounts owned by his wife, Ivonne Ruggles (“Ivonne”).
Based on the evidence presented, the Panel found compelling evidence of 82 instances during the relevant time period in which Ruggles, while trading for Ivonne’s accounts and his employer’s account, either 1) initiated a position opposite his employer’s account; 2) offset a position opposite his employer’s account; or 3) front-ran orders subsequently entered for his employer’s account. The purpose of these trades was to obtain a favorable execution price for Ivonne’s orders in blatant violation of Exchange rules. The Panel also considered the Affidavit of the Chief Financial Officer of Ruggles’ employer, which clearly stated that Ruggles engaged in conduct that violated the employer’s internal policies and procedures. Specifically, information relating to commodity futures trading by the employer constituted confidential and non-public proprietary information and that the employees were prohibited from using that information for their own benefit or the personal benefit of any person or entity other than the employer. The Panel found that Ruggles was not authorized at any time during the relevant time period to execute trades between the employer’s account and the commodity trading accounts of his wife, Ivonne.
As a result of this conduct, the Panel found that Ruggles realized profits in the amount of $3,305,366. For the time period over which Ruggles was subject to the jurisdiction of the Exchange, the Panel found that Ruggles’ profits totaled $2,812,126.20.
The Panel also found ample evidence that Ruggles used Ivonne’s Tag 50 I.D. to enter all of the trades associated with her accounts. Specifically, the Panel found that the IP addresses that were associated with the majority of trading activity in both accounts were mapped and registered to Ruggles’ employer’s office. Furthermore, Market Regulation was advised that Ivonne did not execute any of the trades in either of her personal accounts, which the Panel concluded meant that Ivonne permitted Ruggles to improperly use her Tag 50 I.D. to execute the trades.
Furthermore, the Panel found that Market Regulation requested that Ruggles appear for an interview in connection with the conduct at issue. Interviewing subjects of an investigation is a standard investigative procedure by Exchange staff. Despite receiving a request to appear for an interview, Ruggles, through his counsel, declined to be interviewed.
Accordingly, the Panel found that Ruggles violated NYMEX Rules 432.B.1., 432.B.2., 432.C., 432.L.1., 530, 532 and 576.
Based on the record and the Panel’s findings and conclusions, the Panel ordered Ruggles to: 1) pay a $300,000 fine; 2) disgorge profits in the amount of $2,812,126.20; and 3) be permanently barred from (i) applying for membership at any CME Group Inc. exchange; (ii) accessing any trading floor owned or operated by any CME Group Inc. exchange; and (iii) directly or indirectly accessing any trading or clearing platform owned or operated by the CME Group, Inc., including CME Globex. The Panel found that if Ruggles reached a settlement with the CFTC that included disgorgement of profits or should he be required to disgorge profits pursuant to a Court order, a dollar-for-dollar credit for the amount that Ruggles pays to the CFTC in disgorgement shall be credited against the disgorgement amount ordered by the Panel.
Please see companion case Ivonne Ruggles, NYMEX 12-9153-BC-2.