OAKLEY FUELS INC.
NYMEX RULE VIOLATIONS: 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 534. WASH TRADES PROHIBITED
No person shall place or accept buy and sell orders in the same product and expiration month, and, for a put or call option, the same strike price, where the person knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk (transactions commonly known or referred to as wash sales). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violate the prohibition on wash trades. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.
Pursuant to an offer of settlement Oakley Fuels Inc. (“Oakley”) presented at a hearing on March 29, 2017 in which Oakley neither admitted nor denied the rule violation upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found that on November 6, 2015 and November 16, 2015, Oakley executed two EFRP transactions in the January 2016 NY Harbor ULSD Futures contract. Both EFRP transactions consisted of the simultaneous exchange of futures positions without the evidence of a related position component of the transactions and therefore were non-bona fide. The Panel further found that Oakley executed the transactions for the purpose of transferring positions between two Oakley accounts with common beneficial ownership, resulting in improper wash trades.
The Panel found that, as a result, Oakley violated Exchange Rules 538.C (“Exchange for Related Positions – Related Position”) and 534 (“Wash Trades Prohibited”).
In accordance with the settlement offer, the Panel ordered Oakley to pay a fine to the Exchange in the amount of $25,000.
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