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 1326-4 and RA 1327-4 (in relevant part):
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 that Arian Fouquet (“Fouquet”), presented at a hearing on August 19, 2015, in which Fouquet neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found that Fouquet was subject to the jurisdiction of the BCC pursuant to Exchanges Rules 402 and 418 and that on four dates in January 2014, while employed as a trader for Koch Supply & Trading, LP, Fouquet pre-hedged block trades by trading on Globex prior to consummating the block trade with the counterparty. Specifically, after receiving the solicitation of a block trade but prior to consummating the block trade with the counterparty, Fouquet entered into a separate hedge transaction in the same product as the requested block trade on the opposite side of the market he took upon 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, he was able to guarantee his employer a profit as a result of the subsequent execution of the block trade.
The Panel concluded that Fouquet violated Exchange Rule 526.
In accordance with the settlement offer, the Panel ordered Fouquet to pay a fine of $15,000 and to serve a 5 business day suspension of any access to any CME Group Inc. trading floor and of direct and indirect access to all electronic trading and clearing platforms owned or controlled by CME Group Inc., including CME Globex. The suspension shall run from August 21, 2015 through August 27, 2015, inclusive.