BNP PARIBAS SECURITIES CORP.
CBOT RULE VIOLATION:
Rule 854. CONCURRENT LONG AND SHORT POSITIONS
Set forth below are the procedures that must be followed for concurrent long and short positions and hold-open accounts.
B. Concurrent long and short positions in physically delivered contracts that are held by the same owner during the delivery month and two business days prior to the delivery month must be offset by transactions executed in the market, by allowable privately negotiated transactions, or fulfilled through the normal delivery process, provided however that trades may be transferred for offset if the trade date of the position being transferred is the same as the transfer date. Such positions may not be offset via netting, transfer, or position adjustment except to correct a bona fide clerical or operational error on the day the error is identified and provided that the quantity of the offset does not represent more than one percent of the reported open interest in the affected futures contract month.
C. Clearing members which, pursuant to this rule, carry concurrent long and short positions, must report to the Clearing House both sides as open positions. When either side or both sides are reduced in accordance with Section B. of this rule, the open positions as reported to the Clearing House must be reduced accordingly.
D. The Exchange takes no position regarding the internal bookkeeping procedures of its clearing members which, for the convenience of a customer, may "hold open" a position only on their books. However, the clearing member must accurately report to the Exchange and the Clearing House, as appropriate, large trader positions, long positions eligible for delivery and open interest.
Pursuant to an offer of settlement in which BNP Paribas Securities Corp. (“BNPP”) neither admitted nor denied the findings or any rule violation upon which the penalty is based, on April 12, 2012, a Panel of the CBOT Business Conduct Committee (“The Panel”) found that on trade date May 29, 2009, less than two business days prior to the first delivery day in the June 2009 Denatured Fuel Ethanol futures contract, BNPP failed to accurately report open interest to the Exchange by impermissibly netting down its long and short positions.
The Panel further found that on trade date June 29, 2009, less than two business days prior to the first delivery day in the July 2009 Denatured Fuel Ethanol futures contract, BNPP failed to accurately report open interest to the Exchange by impermissibly netting down its long and short positions.
The Committee found that in so doing, BNPP violated CBOT Rule 854 (Concurrent Long and Short Positions).
In accordance with the settlement offer, the Panel ordered BNPP to pay a fine of $40,000.
In levying this penalty, the Panel considered the significant steps BNPP has taken since January 2012 to enhance its delivery and position reporting practices. For example, BNPP established a Task Force committee comprised of senior level management from various departments within BNPP to conduct a comprehensive managerial review of the delivery and position processes; retained a consulting firm to conduct an internal review of BNPP’s delivery and reporting practices; retained several of its consultants to work with BNPP on-site to ensure that the implementation of the remedial measures are carried out; developed comprehensive written procedures regarding escalation and communication of relevant issues among Operations, Management and Compliance; and conducted mandatory training for Front Office and Operations staff focused on regulatory compliance; and clarified its reporting lines.
April 16, 2012
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