• NOTICE OF DISCIPLINARY ACTION

      • #
      • CME-17-0729-BC
      • Effective Date
      • 26 October 2018
    • FILE NO.:

      CME 17-0729-BC

      MEMBER:

      Deutsche Bank AG

      CME RULE VIOLATIONS:

      Rule 538.C. Related Position

      The related position component of an EFRP must be the cash commodity underlying the Exchange contract or a by-product, a related product or an OTC derivative instrument of such commodity that has a reasonable degree of price correlation to the commodity underlying the Exchange contract. The related position component of an EFRP may not be a futures contract or an option on a futures contract.

      Each EFRP requires a bona fide transfer of ownership of the underlying asset between the parties or a bona fide, legally binding contract between the parties consistent with relevant market conventions for the particular related position transaction.

      The execution of an EFRP transaction may not be contingent upon the execution of another EFRP or related position transaction between the parties where the transactions result in the offset of the related position without the incurrence of market risk that is material in the context of the related position transactions.

      534. Wash Trades Prohibited

      No person shall place or accept buy and sell orders in the same product and expiration month, and, for a put or call option, the same strike price, where the person knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk (transactions commonly known or referred to as wash sales). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violate the prohibition on wash trades. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.

      432. General Offenses

      It shall be an offense:

      W.    for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.

      FINDINGS:

      Pursuant to an offer of settlement in which Deutsche Bank AG (“DBAG”) neither admitted nor denied the rule violations upon which the penalty is based, on October 24, 2018, a Panel of the Chicago Mercantile Exchange (“CME”) Business Conduct Committee (“BCC” or “Panel”) found that on February 6, 2017, DBAG executed an Exchange for Physical (“EFP”) transaction in the Eurodollar futures market that consisted of the simultaneous exchange of futures positions without the exchange of related positions, thereby executing a non-bona fide EFP. The Panel further found that DBAG executed the transaction between two of its accounts with common beneficial ownership thereby avoiding any market risk. Notwithstanding DBAG’s implementation of a multi-tiered pre- and post- execution system to monitor the execution of EFRP transactions, which incorporates front, mid and back office functionality, in this instance DBAG, through a series of mistakes, reported a non-bona fide EFP to the Exchange. The Panel concluded that DBAG thereby violated CME Rules 538.C. and 534. To the extent that DBAG’s pre- and post-execution system fell short on several fronts, all with respect to the same transaction, the Panel concluded that a 432.W. violation also occurred.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered DBAG to pay a fine of $75,000.

      EFFECTIVE DATE:

      October 26, 2018