• NOTICE OF DISCIPLINARY ACTION

      • #
      • NYMEX 15-0150-BC-5
      • Effective Date
      • 09 June 2016
    • MEMBER:

      UBS AG

      NYMEX RULES:  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.

      EXCHANGE RULE 432. GENERAL OFFENSES

      It shall be an offense:

      X. to aid or abet the commission of any offense against the Exchange.

      FINDINGS:

      Pursuant to an offer of settlement, UBS AG (“UBS”) presented at a hearing on June 7, 2016 in which UBS 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 UBS as a NYMEX member pursuant to NYMEX Rules 400 and 402, and that on August 15, 2014, UBS executed one non-bona fide transitory Exchange for Related Position (“EFRP”) transaction. In contravention of Rule 538.C., UBS failed to evidence an associated related position for the EFRP transaction, thus rendering the transaction non-bona fide.

      The Panel also found that on August 4, 2014, while acting solely as broker for a customer, UBS erroneously submitted a block trade to the Exchange as an EFRP. The EFRP was non-bona fide because there was no corresponding related OTC position and therefore, the counterparties to this transaction violated Rule 538.C. In mistakenly transmitting the transaction to the Exchange as an EFRP rather than a block trade, UBS contravened Rule 432.X.

      The Panel found that, as a result, UBS violated Exchange Rules 538.C. and 432.X.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered UBS to pay a fine to the Exchange in the amount of $30,000.