KEMPLER & CO., INC.
NYMEX RULE VIOLATION: EXCHANGE RULE 538. EXCHANGE FOR RELATED POSITIONS
The following transactions shall be permitted by arrangement between parties in accordance with the requirements of this rule: Exchange for Physical (“EFP”) – A privately negotiated and simultaneous exchange of an Exchange futures position for a corresponding cash position. Exchange for Risk (“EFR”) – A privately negotiated and simultaneous exchange of an Exchange futures position for a corresponding OTC swap or other OTC instrument. Exchange of Options for Options (“EOO”) – A privately negotiated and simultaneous exchange of an Exchange option position for a corresponding OTC option position or other OTC instrument with similar characteristics. For purposes of this rule, an EFP, EFR or EOO shall be referred to as an Exchange for Related Position (“EFRP”).
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 Kempler & Co., Inc. (“Kempler”) presented at a hearing on November 25, 2014, in which Kempler neither admitted nor denied the rule violation upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found it had jurisdiction over Kempler pursuant to NYMEX Rules 400 and 418 and that, on September 27, 2013, Kempler entered into an EFRP which did not contain documentation of the related cash transaction and, therefore, was not a bona fide EFRP.
The Panel found that, as a result, Kempler violated Exchange Rule 538.H. (“Exchange for Related Positions – Documentation”).
In accordance with the settlement offer, the Panel ordered Kempler to pay a fine to the Exchange in the amount of $10,000.