Central States Enterprises, LLC
CBOT RULE VIOLATIONS:
Rule 432 (“General Offenses”) (in part)
It shall be an offense:
W. for a Member to fail to diligently supervise its employees and agents in the conduct of their business relating to the 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.
Rule 576. Identification of Globex Terminal Operators
Each Globex terminal operator shall be identified to the Exchange, in the manner prescribed by the Exchange, and shall be subject to Exchange rules. If user IDs are required to be registered with the Exchange, it is the duty of the clearing member to ensure that registration is current and accurate at all times. Each individual must use a unique user ID to access Globex. In no event may a person enter an order or permit the entry of an order by an individual using a user ID other than the individual’s own unique user ID.
Pursuant to an offer of settlement in which Central States Enterprises, LLC (“Central States”) neither admitted nor denied the rule violations upon which the penalty is based, on February 11, 2014, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that Central States voluntarily submitted itself to the jurisdiction of the BCC for purposes of settling this matter and that on July 13, 2012, employees of Central States executed three trades on Globex totaling 142 contracts in July 2012 Corn Futures in which Central States maintained ownership and control of the accounts on both sides of the transactions. The matching buy and sell orders were entered by two employees of Central States with the knowledge and intent that the orders would match opposite one another. The purpose of these transactions was to correct a previous error in allocation between accounts on the last trading day of the July 2012 Corn contract at a time when positions could no longer be transferred to offset between accounts. Central States discovered these prearranged trades and reported them to the Exchange the same day they occurred. The Panel found that Central States permitted the entry of orders by an individual using a Tag 50 ID other than the individual’s own unique user ID. The Panel also found that Central States failed to diligently supervise its traders in a manner sufficient to ensure that their conduct was consistent with Exchange rules.
The Panel concluded that Central States thereby violated CBOT Rules 432.W, 534 and 576.
In accordance with the settlement offer, the Panel ordered Central States to pay a fine of $25,000.
February 13, 2014
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