CAPSTONE FIXED INCOME LLC
(legacy) CBOT REG. VIOLATIONS:
9B.13 Trading Against Customer Orders and Crossing Orders
(a) Trading Against Customer Orders – During an e-cbot trading session, a member or Registered User shall not knowingly cause to be entered or knowingly enter into a transaction in which he takes the opposite side of an order entered on behalf of a customer, for the member’s or Registered User’s own account or his employer’s proprietary account unless the customer order has been entered immediately upon receipt and has first been exposed on the e-cbot platform for a minimum of 5 seconds for outright futures contracts and a minimum of 15 seconds for strategies and options contracts. . . .
(c) Pre-Execution Communications Prohibited
(ii) Pre-execution communications and transactions arising from such communications are prohibited in all products during all hours except as otherwise provided by Regulation 331.05 “Block Trade Transactions”.
Pursuant to an offer of settlement in which Capstone Fixed Income neither admitted nor denied the findings, on April 14, 2010, a Panel of the CBOT Business Conduct Committee found that on August 15 and 16, 2007, Capstone Fixed Income traded more than 35,000 Ten-Year United States Treasury Note options spreads opposite customer orders entered by affiliate-Capstone Sales Advisors on the e-cbot electronic trading platform. In each of the five trades, Capstone Fixed Income and Capstone Sales Advisors engaged in pre-execution communications to facilitate the transactions. Also, in each trade, Capstone Fixed Income entered its order into e-cbot prior to Capstone Sales Advisors entering its customer order. Therefore, the customer order was not immediately entered into the e-cbot platform and exposed to market risk prior to the entry of the Capstone Fixed Income order. In so doing, the Panel found that Capstone Fixed Income violated legacy CBOT Regulation 9B.13.
In accordance with the settlement offer, the Panel fined Capstone $150,000.
April 16, 2010
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