NEWEDGE USA, LLC
CME RULE VIOLATIONS:
538. EXCHANGE FOR RELATED POSITIONS
G. Clearing member firms are responsible for exercising due diligence as to the bona fide nature of EFRP transactions submitted on behalf of customers.
MARKET REGULATION ADVISORY NOTICE RA0910-5
Q20: Does a firm that executes and/or clears an EFRP on behalf of a customer have any regulatory exposure if the EFRP does not conform to the requirements of Rule 538?
A20: A firm that executes and submits and EFRP on behalf of a customer is responsible for exercising due diligence as to the bona fide nature of the EFRP. Failure to do so may be deemed a violation of [Rule] 538 by the firm. * * *
443. POSITION LIMIT VIOLATIONS
The Market Regulation Department and the BCC shall have the authority to enforce the position limit rules of the Exchange. For purposes of this rule, any positions in excess of those permitted under the rules of the Exchange shall be deemed position limit violations.
432. GENERAL OFFENSES
It shall be an offense:
Q. to commit an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange.
Pursuant to an offer of settlement in which Newedge USA, LLC (“Newedge”) neither admitted nor denied rule violations upon which the penalty is based, on December 17, 2010, a Panel of the CME Business Conduct Committee found that on October 9, 2009, Newedge executed three October 2009 Live Cattle EFRPs as a counterparty to its customer with the intent of executing an equal, offsetting EFRP transaction on October 12, 2009. Newedge cleared the EFRP transaction on behalf of itself, but failed to exercise due diligence to ensure that the transactions were bona fide. While executing the EFRP transactions Newedge carried a position of 4495 contracts in the expiring Live Cattle futures contract, which exceeded the applicable speculative position limit of 450 contracts.
The Panel found that in so doing Newedge violated CME Rule 538 and associated MRAN RA0910-5, Rule 443, and Rule 432.Q.
In accordance with the settlement offer, the Panel ordered Newedge USA, LLC to pay a fine of $80,000.
December 21, 2010
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