NEWEDGE USA LLC (now known as SG Americas Securities, LLC)
Rule 432. GENERAL OFFENSES
It shall be an offense to:
B.2. engage in conduct or proceedings inconsistent with just and equitable principles of trade.
W. for a Member to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange;
Rule 529. Withholding Orders Prohibited
A Member (as defined in Rule 400), or any person entering orders on the GLOBEX platform, shall not withhold or withdraw from the market any order, or any part of an order, for the benefit of any person other than the person placing the order.
Legacy Rule 538.A. Nature of an EFRP (in part)
An EFRP consists of two discrete but related simultaneous transactions. One party to the EFRP must be the buyer of (or the holder of the long market exposure associated with) the related position and the seller of the corresponding Exchange contract. The other party to the EFRP must be the seller of (or the holder of the short market exposure associated with) the related position and the buyer of the corresponding Exchange contract.
Legacy Rule 538.G. Identification and Submission to the Clearing House
Each EFRP transaction shall be designated as such and shall be cleared through the Clearing House. Each such transaction shall be submitted to the Clearing House within the time period and in the manner specified by the Exchange. Clearing member firms are responsible for exercising due diligence as to the bona fide nature of EFRP transactions submitted on behalf of customers.
Legacy Rule 538.H. Documentation (in part)
Parties to any EFRP transaction must maintain all documents relevant to the Exchange contract and the cash, OTC swap, OTC option, or other OTC derivatives, including all documents customarily generated in accordance with relevant market practices and any documents reflecting payment and transfer of title. Any such documents must be provided to the Exchange upon request, and it shall be the responsibility of the carrying clearing member firm to provide such requested documentation on a timely basis.
Pursuant to an offer of settlement in which Newedge USA LLC (“Newedge”) neither admitted nor denied the rule violations upon which the penalty is based, on February 18, 2015, a Panel of the COMEX Business Conduct Committee (“Panel”) found that Newedge is subject to the jurisdiction of the Exchange under Rules 400 and 402 as the conduct involving trading in Gold and Silver futures and options occurred while Newedge was a clearing member of the Exchange.
The Panel also found that on multiple occasions between 2010 and 2012 employees working for Newedge, but trading accounts of a Newedge affiliate, received orders, including market and limit orders, from customers which were executed as EFRPs instead of on Globex, as expected by the customers in many instances. In these instances, Newedge typically entered an EFRP with a liquidity provider and then a separate EFRP with the customer at a price that included a markup. In other cases, Newedge executed the EFRP with the customer without using a liquidity provider. The price for the EFRP with the customers, however, was not in all instances negotiated but, rather, determined by Newedge. Further, the Panel found that there was inadequate documentation of the OTC leg of the EFRP transactions between Newedge and its customers and that in many cases the trades were not designated by Newedge on the customer account statements as EFRPs due to an operational error. For these reasons, certain of the EFRPs between Newedge and its customers were not bona fide.
The Panel concluded that by engaging in the foregoing conduct, Newedge violated NYMEX Rules 432.B.2; 432.W; 529; and Legacy Rules 538.A; 538.G and 538.H.
In accordance with the offer of settlement, the Panel fined Newedge $1,750,000 in connection with this case and companion case NYMEX 11-8619-BC ($1,100,000 of which is allocated to COMEX).