SG Americas Securities, LLC (as successor to Newedge USA, LLC)
CBOT RULE VIOLATIONS:
Rule 432. (“General Offenses”) (in part)
It shall be an offense:
W. for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.
Legacy CBOT Rule 526. Block Trades (in part)
The Exchange shall designate the products in which block trades shall be permitted and determine the minimum quantity thresholds for such transactions. The following shall govern block trades:
F. Unless otherwise agreed to by the principal counterparties to the block trade, the seller, or, in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported to the Exchange within five minutes of the time of execution; except that block trades in interest rate futures and options executed outside of Regular Trading Hours (7:00 a.m. – 4:00 p.m. Central Time, Monday – Friday on regular business days) must be reported within fifteen minutes of the time of execution. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month.
CME & CBOT Market Regulation Advisory Notice RA 1307-3 (in part)
5(b). Reporting Obligation (in part)
Price reporting obligations are the responsibility of the seller, unless otherwise agreed to by the principal counterparties to the block trade; however, in the case of a brokered transaction, the price reporting obligation is the responsibility of the broker handling the block trade, unless otherwise agreed to by the principal counterparties to the block trade. For purposes of the foregoing, the term “seller” refers to the principal counterparty acting as the seller of the block trade.
The failure to submit timely, accurate and complete block trade reports may subject the party responsible for the reporting obligation to disciplinary action. Parties shall not be sanctioned for block reporting infractions deemed to arise from factors beyond the reporting party’s control (e.g. the block trade fails the CME ClearPort automated credit check).
10. Use of Nonpublic Information Regarding Block Trades
Parties involved in the solicitation or negotiation of a block trade may not disclose the details of those communications to any other party for any purpose other than to facilitate the execution of the block trade. Parties privy to nonpublic information regarding a consummated block trade may not disclose such information to any other party prior to the public report of the block trade by the Exchange. A broker negotiating a block trade on behalf of a customer may disclose the identity of the customer to potential counterparties, including the counterparty with which the block trade is consummated, only with the permission of the customer.
Pre-hedging or anticipatory hedging of any portion of a block trade in the same product or a closely-related product based upon a solicitation to participate in a block trade is not permitted. A closely related product is a product that is highly correlated to, serves as a substitute for, or is the functional economic equivalent of the product being traded as a block.
Counterparties to a block trade are permitted to initiate trades to hedge or offset the risk associated with the block trade following the consummation of the block trade, including during the period preceding the public report of the block trade by the Exchange.
Except as provided above, parties privy to nonpublic information attendant to a block trade are prohibited from trading in the same product or a closely-related product for the purpose of taking advantage of such information prior to the public report of the block trade by the Exchange. This prohibition is not intended to preclude such parties from continuing to transact in the marketplace in the context of their normal business; rather, it precludes parties in possession of actionable nonpublic information regarding an imminent block trade or report of a block trade from specifically using such information to their advantage. Information regarding a block trade is considered to be nonpublic until such time that the block trade details have been disseminated to the marketplace by the Exchange or the information can otherwise be demonstrated to have become stale or obsolete.
Pursuant to an offer of settlement in which SGAS Americas Securities, LLC (“SGAS”) (as successor to Newedge USA, LLC)) neither admitted nor denied the rule violations upon which the penalty is based, on June 21, 2016, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“Panel”) found that it had jurisdiction over SGAS (as successor to Newedge) pursuant to Rules 400 and 402 as the conduct occurred while Newedge was a CBOT member. The Panel further found that on six days between November 2013 and January 2014, three traders for Newedge (one employed by Newedge and two by its Canadian affiliate) entered into separate transactions with third parties prior to consummating the block trade with the counterparty. Specifically, in each instance, after receiving solicitation of a block trade, but prior to consummating the block trade with the counterparty, Newedge executed a separate block trade with a liquidity provider in the same product and on the same side of the market as the customer’s proposed block trade in order to hedge the trade ultimately executed opposite the customer. As a result of this activity, Newedge realized profits in the amount of $19,502.50. In addition, Newedge failed to report certain of these block trades within the specified time period following execution, as well as reported inaccurate execution times of block trades.
The Panel also found that, in connection with this activity, Newedge failed to diligently supervise its traders in the conduct of their business relating to the Exchange.
The Panel concluded that as a result of the foregoing, Newedge violated CBOT Rules 432.W. and 526.
In accordance with the settlement offer, the Panel ordered SGAS, as successor to Newedge, to pay a fine in the amount of $100,000 and disgorge profits in the amount of $19,502.50.
June 23, 2016