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      • Members, Member Firms and Market Users
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      • Market Regulation Department
      • #
      • SER-5481
      • Notice Date
      • 18 November 2010
      • Effective Date
      • 29 November 2010
    • Effective Monday, November 29, 2010, CME, CBOT and NYMEX will adopt revisions to the rules in each exchange’s Chapter 4 (“Enforcement of Rules”) and other related rules.  The changes are the result of a comprehensive review of the disciplinary process rules and are being adopted to reflect best practices and to continue to promote market integrity through an effective and rigorous self-regulatory enforcement program.  A description of the significant changes is set forth below.


      The electronic version of this Special Executive Report posted on the CME Group Web site contains the text of the rule changes, with additions underscored and deletions overstruck.  This version may be accessed on the Special Executive Report page on the Web site at the following address http://www.cmegroup.com/rulebook/rulechanges.html.


      Position Limit Violations

      Former Rule 443 (“Position Limit Violations”) has been revised and relocated in Chapter 5 as Rule 562 (“Position Limit Violations”) in order to keep in proximity with other position-related rules.  Rule 562 eliminates the automatic fining schedule currently set forth in Rule 443.  As a result, position limit violations will be handled pursuant to the normal disciplinary process applicable to other regulatory rules for which pre-determined sanctions do not exist and may result in the issuance of charges and disposition by a Panel of the Business Conduct Committee.


      Business Conduct Committee (“BCC”) and Probable Cause Committee (“PCC”)


      Rules 402 (“Business Conduct Committee”) and 406 (“Probable Cause Committee”) have been revised to decrease the Panel size of each committee from seven to five individuals.  Panels of each committee will be comprised of a Hearing Panel Chair, two non-members and two members or representatives of member firms, at least one of whom must be from the contract market where the case originated. 


      Rule 402 has been further amended to provide a Panel of the BCC the authority to expel an individual from membership in any exchange owned or controlled by CME Group.  Additionally, a provision has been added to provide the Panel the authority in a supported offer of settlement to order any sanction or undertaking to address or deter the underlying violative conduct that is not specifically enumerated in the list of available sanctions provided that such sanction or undertaking is agreed to by the party and the Market Regulation Department.

      A provision has been added to Rule 406 to clarify that a Panel of the PCC may direct the Market Regulation Department to conduct further investigation into a matter after its review of an investigation report.  Additionally, a provision has been added to require a Panel of the PCC to explain its reasons for any refusal to issue any charge requested by the Market Regulation Department.


      Conduct of Hearings


      A number of revisions have been made to Rule 408 (“Conduct of Hearings”).  The significant changes include the following:


      1. A provision has been added to allow the Market Regulation Department to revise the charging memorandum with the consent of a Panel of the PCC.  This is intended to address situations where such revisions are warranted as a result of further investigation into the underlying activity or into other potential rule violations by a party who has already been charged.
      2. A respondent’s right to submit an unsupported offer of settlement to a Panel of the BCC has been limited to a single offer.  If the unsupported offer is not accepted, a respondent will not be permitted to submit another unsupported offer of settlement to the panel, except in the limited circumstance where the charging memorandum has been revised subsequent to a Panel’s consideration of an unsupported offer of settlement.  If the respondent and the Market Regulation Department cannot agree upon settlement terms after a Panel has declined to accept an unsupported offer, the matter will be resolved via a contested hearing.  
      3. A provision has been added which requires a Panel of the BCC to hold a separate sanctioning phase after it makes a determination that a rule has been violated.  The sanctioning phase allows the Market Regulation Department and the respondent to present information to the Panel regarding their respective views of the appropriate sanctions that should be issued by the Panel.
      4. Language has been added to clarify that a Panel’s decision is final on the date the written decision is signed by the Hearing Panel Chair.  Additional language clarifies that the decision becomes a final decision of the exchange after any appellate period has lapsed.
      5. A specification that the Panel provide “reasoned” conclusions with respect to each charge has also been added to the Rule. 


      Summary Access Denial Actions

      Two new provisions have been added to Rule 413 (“Summary Access Denial Actions”).  The first permits a non-member who has been summarily denied access by the Chief Regulatory Officer to request a hearing on the action provided that the non-member submits to the direct jurisdiction of the exchange with respect to the access denial and any future or pending actions that may result from the conduct giving rise to the access denial. 

      The second provision allows a party who has been summarily denied access by the Chief Regulatory Officer to consent to an extension of such denial after the two 60 day duration windows set forth in the Rule have expired.  In the absence of such voluntary agreement, a provision has been added to clarify that the Market Regulation Department may petition a Panel of the BCC to take an emergency action pursuant to Rule 402 to allow the access denial to remain in effect.


      Summary Proceedings Before the Floor Conduct Committee

      Rule 409 (“Summary Proceedings Before the Floor Conduct Committee”) has been amended to increase the minimum amount of a summary fine eligible to be appealed from $1,000 to $5,000.


      General Offenses

      A provision has been added to Rule 432 (“General Offenses”) clarifying that it is an offense for market participants to prearrange the execution of transactions for the purpose of transferring equity between accounts.  The prearrangement of trades for the purpose of passing money from one account to another account violates the requirement that trades in exchange products be made in good faith for the purpose of executing bona fide transactions.


      Failure to Pay an Arbitration Award

      The language in Rule 618 (“Satisfaction of Award”) describing the limitation of privileges that result from a failure to pay an arbitration award has been harmonized to the greatest extent possible with the limitation of privileges that result from summary access denials.

      Settlement Prices

      Language formerly residing in CME and CBOT Rule 404 (“Pit Committee”) and NYMEX and COMEX Rule 405 (“Floor Conduct Committee”) concerning the Exchange’s right, title and interest in and to settlement prices has been relocated to Rule 813 (“Settlement Price”).


      If you have any questions concerning these revisions, please contact one of the following individuals in the Market Regulation Department:


      Joe Adamczyk, Director, Global Head of Enforcement, at 312.435.3581

      Ronney Rosenberg, Associate Director, Enforcement Counsel, at 212.299.2853

      Andrew Vrabel, Associate Director, Enforcement Counsel, at 312.341.3249


      For media inquiries concerning this Special Executive Report, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.