• NOTICE OF DISCIPLINARY ACTION

      • #
      • CBOT 18-0939-BC
      • Effective Date
      • 22 February 2019
    • FILE NO.:

      CBOT 18-0939-BC

      MEMBER FIRM:

      Nomura Securities International, Inc.

      CBOT 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.

      Rule 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.

      FINDINGS:

      Pursuant to an offer of settlement in which Nomura Securities International, Inc. (“Nomura”) neither admitted nor denied the rule violations upon which the penalty is based, on February 20, 2019, a Panel of the Chicago Board of Trade Business Conduct Committee (“ BCC”) found that on November 9, 2017, Nomura executed two Exchange for Physical (“EFP”) transactions in the December 2017 2-Year Treasury Note futures market that consisted of the simultaneous exchange of futures positions without the exchange of related cash positions, resulting in the execution of non-bona fide EFPs, as there was no bona fide transfer of ownership of the underlying assets. The Panel further found that Nomura executed the transactions between accounts with common beneficial
      ownership, understanding that the executions would avoid any market risk. The Panel concluded that this activity violated CBOT Rules 538.C. and 534.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered Nomura to pay a fine of $30,000.

      EFFECTIVE DATE:

      February 22, 2019