NIC Holding Corp.
NYMEX RULE VIOLATION: EXCHANGE RULE 526. BLOCK TRADES
The Exchange shall designate the products in which block trades shall be permitted and determine the minimum quantity thresholds for such transactions.
NYMEX/COMEX MARKET REGULATION ADVISORY NOTICE RA 1318-4 and RA 1327-4 (in relevant part)
10. Use of Non-Public 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 non-public 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 non-public 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 by the Exchange or the information can otherwise be demonstrated to have become stale or obsolete.
Pursuant to an offer of settlement that NIC Holding Corp. (“NIC”) presented at a hearing on December 16, 2015, in which NIC neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“BCC”) found that it had jurisdiction over NIC pursuant to Exchange Rules 400 and 402, and that on three dates, September 25, 2013, January 30, 2014, and February 7, 2014, specifically, a trader employed by NIC, pre-hedged nine block trades by trading on Globex prior to consummating the block trade with counterparty. Specifically, after receiving the solicitation of a block trade but prior to consummating the block trade with counter-party, NIC entered into a separate hedge transaction in the same product as the requested block trade, on the opposite side of the market NIC took upon the subsequent consummation of the block trade. By entering into the hedge transaction and establishing the price of the hedge transaction prior to consummating the block trade, NIC was able to guarantee itself a profit upon the subsequent execution of the block trade. As a result of pre-hedging these block trades, NIC realized a profit in the amount of $114,060.
The Panel found that, as a result, NIC violated NYMEX Rule 526 (Block Trades).
In accordance with the settlement offer, the Panel ordered to pay a fine to the Exchange in the amount of $75,000 and to disgorge profits in the amount of $114,060
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