• NOTICE OF DISCIPLINARY ACTION

      • #
      • CME-17-0658-BC
      • Effective Date
      • 27 October 2017
    • FILE NO.:

      CME 17-0658-BC

      MEMBER:

      Morgan Stanley & Co LLC

      CME RULE VIOLATION:

      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.

      FINDINGS:

      Pursuant to an offer of settlement in which Morgan Stanley & Co LLC (“Morgan Stanley”) neither admitted nor denied the rule violation upon which the penalty is based, on October 25, 2017, a Panel of the Chicago Mercantile Exchange (“CME”) Business Conduct Committee (“BCC” or “Panel”) found that on several occasions between January 2016 and June 2016, Morgan Stanley, acting as a broker, executed certain Exchange for Related Position (“EFRP”) transactions in E-mini NASDAQ 100 futures and E-mini S&P 500 futures contracts that were contingent upon the execution of other EFRP transactions. Morgan Stanley executed the transactions without the incurrence of material market risk. The Panel thus concluded that Morgan Stanley thereby violated CME Rule 538.C.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered Morgan Stanley to pay a fine of $70,000.

      EFFECTIVE DATE:

      October 27, 2017