• NOTICE OF SUMMARY ACTION

      • #
      • CBOT-17-0775-BC
      • Effective Date
      • 06 June 2019
    • FILE NO.:

      CBOT 17-0775-BC

      NON-MEMBER FIRM:

      AWH Financial LLC

      CBOT RULE VIOLATION:

      Rule 562 (“Position Limit Violations”) (in part)

      Any positions, including positions established intraday, in excess of those permitted under the rules of the Exchange shall be deemed position limit violations.

      FINDINGS:

      On March 21, 2019, an evidentiary hearing was held on the charge that AWH Financial LLC (“AWH”), violated CBOT Rule 562. AWH did not dispute the facts establishing liability and, as a result, a Panel of the CBOT Business Conduct Committee (“Panel”) issued a written decision finding that AWH exceeded the spot month position limit of 600 contracts in September 2017 Corn futures contracts (“SEP17 Corn”) on August 30, 2017, by 600 contracts long, or 100 percent. The Panel concluded that AWH violated Rule 562.

      The hearing focused on the appropriate monetary fine to be imposed on AWH and what amount, if any, of disgorgement as a result of the Rule 562 violation should be ordered. CBOT Rule 402.B.11 provides for the disgorgement of any benefit, including avoided losses, resulting from a rule violation. Despite the fact that AWH lost money on its overall SEP17 Corn position, the Panel found that AWH benefited from the position limit violation by avoiding additional losses it would have incurred had it not violated the rule. Having determined that AWH benefited from the violation, the Panel concluded that disgorgement must be ordered and focused on the amount of such disgorgement.

      The Panel endorsed the methodology employed by Market Regulation to determine the appropriate amount of disgorgement as straightforward, fair and consistent with the methodology used in other similar cases. At the close of business on August 30, 2017, AWH held a Net Futures Equivalent long position of 1,200 SEP17 Corn, which exceeded the spot month limit of 600 contracts. On August 31, 2017, AWH came into the spot month position limit by selling September 2017- December 2017 Corn futures calendar spreads (“SEP17/DEC17 Spread”) and SEP17 Corn futures outrights. In determining the amount of benefit resulting from the position limit violation, the Panel only considered the portion of AWH’s trading related to the 600 contracts that were in violation of the spot month position limit; that is, the first 600 sales transactions on August 31, 2017.

      The Panel next found that on the morning of August 31, 2017, AWH sold 103 Sep17/Dec17 Spreads and 497 SEP17 Corn futures outrights. The Panel considered each leg of the 103 SEP17/DEC17 Spread as well as the 497 SEPT17 outrights in calculating whether AWH received any benefit on the liquidation of the overage. The Panel found that AWH avoided further losses, and thereby benefitted, in the amount of $53,562.50 as a result of violating Rule 562.

      PENALTY:

      Based on the record and the Panel’s findings and conclusions, the Panel ordered AWH to pay a fine of $25,000 and disgorgement in the amount of $53,562.50.

      EFFECTIVE DATE:

      June 6, 2019