• NOTICE OF DISCIPLINARY ACTION

      • #
      • CBOT-16-0487-BC
      • Effective Date
      • 28 September 2017
    • FILE NO.:

      CBOT 16-0487-BC

      MEMBER:

      Morgan Stanley & Co. International Plc

      CBOT RULE VIOLATION[S]:

      Rule 538. Exchange for Related Positions (in part)

      Rule 538.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 instrument of such commodity that has a 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 transactions 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.

      538.E. Quantity Equivalence

      The quantity of the related position component of the EFRP must be approximately equivalent to the quantity of the Exchange component of the EFRP. Appropriate hedge ratios between the Exchange and related position components of the EFRP may be used to establish equivalency.

      FINDINGS:

      Pursuant to an offer of settlement in which Morgan Stanley & Co. International Plc (“MSIP”) neither admitted nor denied the rule violation upon which the penalty is based, on September 26, 2017, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“BCC” or “Panel”) found that on October 26, 2015, MSIP facilitated the execution of two Exchange for Related Position (“EFRP”) transactions in the 10-Year U.S. Treasury Note futures market that were contingent upon each other for the purpose of rebalancing positions, which offset the related position without the incurrence of material market risk. Additionally, the Panel found that the quantity of the related position was not approximately equivalent to the quantity of the Exchange component of the EFRP. The Panel thus concluded that MSIP thereby violated CBOT Rules 538.C. and 538.E.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered MSIP to pay a fine of $25,000.

      EFFECTIVE DATE:

      September 28, 2017