• #
      • CBOT 17-0797-BC
      • Effective Date
      • 28 June 2019
    • FILE NO.:

      CBOT 17-0797-BC


      Eagle Market Makers


      Rule 432 (“General Offenses”) (in part)

      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.

      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 trades or 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.

      CBOT Market Regulation Advisory Notice RA 1614-5 (in part)

      Q18: Is it a violation of Rule 534 if resting orders in the order book entered during the Globex pre-open match opposite one another once the market opens?

      A18: Yes, if a self-match occurs when the market opens as a result of orders entered during the Globex pre-open state that a party knew or should have known would match, then the party has violated Rule 534. Parties should have a reasonable expectation that their resting buy and sell orders may match when the market opens if the buy orders are priced at or above the price of their resting sell orders or the sell orders are priced at or below the price of their resting buy orders.

      During a market’s pre-open state on Globex, an Indicative Opening Price (“IOP”) is calculated. As described in Rule 573 (“Globex Opening”), the IOP reflects the price between the buying and selling pressure at which the largest volume of trading can occur and is based on the Globex equilibrium price algorithm and all pending orders that may be executed when Globex opens. During the “No Cancel” period of the pre-open, new order entry is allowed but order modifications and cancellations are not.


      Pursuant to an offer of settlement in which Eagle Market Makers (“EMM”) neither admitted nor denied the rule violations upon which the penalty is based, on May 23, 2019, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that between July 2016 and February 2019, during the pre-opening period for various Agricultural futures spread markets, and prior to the No Cancel period, several EMM traders entered buy (sell) orders. After the pre-open period transitioned to the No Cancel period, other market participants’ new orders caused the Indicative Opening Price (“IOP”) to shift up (down). Because of the change in market conditions, the EMM traders no longer wanted to buy (sell) at the new (higher/lower) IOP and were unable to cancel or modify their resting orders. As a result, the EMM traders entered crossed-market sell (buy) orders to offset or “scratch” the original buy (sell) orders. Upon the market opening, the EMM traders’ buy and sell orders frequently traded opposite each other at the opening price. Given the pricing of the opposing orders through each other, the EMM traders knew or reasonably should have known that the purpose of these orders was to trade opposite their resting orders on the market open. With the entry of the crossed-market orders, the EMM traders did not intend to take a bona fide market position and intended to negate market risk.

      The Panel also found that despite the Exchange sending warning letters to multiple EMM traders for the same or similar activity, EMM failed to provide adequate guidance to its employees on Exchange rules and regulations with regard to wash trades or entering orders during the pre-open period.

      The Panel concluded that as a result of the foregoing, EMM violated CBOT Rules 432.W. and 534.


      In accordance with the settlement offer, the Panel ordered EMM to pay a fine to the Exchange of $150,000.


      June 28, 2019