NOTICE OF DISCIPLINARY ACTION

FILE NO.:

14-9725-BC

MEMBER:

Howard Norman Stark (WTC)

RULE VIOLATIONS:

CME Rule 432 GENERAL OFFENSES (in part)

It shall be an offense:

B.1 to engage in fraud or bad faith.

CME Rule 521 REQUIREMENTS FOR OPEN OUTCRY TRADES
In open outcry trading, bidding and offering practices must at all times be conducive to the competitive execution of transactions. All open outcry transactions, including spread and combination transactions, shall be made openly and competitively in the pit designated for the trading of the particular transaction. No bid or offer shall be specified for acceptance by a particular trader. Transactions may take place only at the best price available in the open outcry market at the time the trade occurs.

It shall be the duty of both traders to confirm their trades as to the price, quantity, commodity, contract month, respective clearing members and, for options, strike price, put or call and expiration month. Confirmation shall take place as soon as possible, but in no event more than 15 minutes after the trade

CME 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.

CME Rule 536 RECORDKEEPING REQUIREMENTS FOR PIT, GLOBEX, AND NEGOTIATED TRADES (in part)
536 A. General Requirements for Open Outcry Pit Trades (in part) - Each member shall provide his clearing member with any trading documents which are relied upon for transactional information necessary for submission to the clearing system containing those trades that have been executed thus far during that day. Trading documents include trading cards of members' personal and proprietary trades, trading cards of one member reflecting trades executed on behalf of another member and floor order tickets. Such trading documents must be submitted and timestamped no later than 15 minutes after the end of each half-hour interval.

CME Rule 539 PREARRANGED, PRE-NEGOTIATED AND NONCOMPETITIVE TRADES PROHIBITED (in part)
539 A. General Prohibition - No person shall prearrange or pre-negotiate any purchase or sale or noncompetitively execute any transaction, except in accordance with Sections B. and C. below.

CME Rule 540 RESPONSIBILITY FOR CUSTOMER ORDERS (in part)
A Member is prohibited from directly or indirectly guaranteeing the execution of an order or any of its terms such as the quantity or price. A Member may only report an execution that has occurred as a result of open outcry…

CME Rule 576 Identification of Globex Terminal Operators
Each Globex terminal operator shall be identified to the Exchange, in the manner prescribed by the Exchange, and shall be subject to Exchange rules. If user IDs are required to be registered with the Exchange, it is the duty of the clearing member to ensure that registration is current and accurate at all times. Each individual must use a unique user ID to access Globex. In no event may a person enter an order or permit the entry of an order by an individual using a user ID other than the individual’s own unique user ID.

FINDINGS:

On April 4, 2018, a Panel of the Chicago Mercantile Exchange (“CME”) Probable Cause Committee charged Howard Norman Stark with violating CME Rules 534, 536.A., 432.B.1., 539, 521, 576, and 540 based on allegations that on three occasions from September 26, 2013, through April 9, 2014, Stark placed buy and sell orders on behalf of his customer for S&P 500 Options and Flex Options on Futures in the same expiration months, strike prices, and at the same trade prices, while he knew—or reasonably should have known—that the purpose of these orders was to avoid taking a bona fide market position exposed to market risk. It was further alleged that on two occasions Stark knowingly had the sell side of the transactions misallocated to accounts other than the ones in which the trades were ultimately allocated. The purpose of these transactions in this fashion was to avoid maintenance margin requirements. Further, during the same timeframe and related to these transactions, Stark did not submit trading cards for keypunching on the original trade date, prearranged and noncompetitively executed trades, increased the quantity of a trade without competitively executing the additional quantity in the market, reported an execution to his customer that did not occur as a result of open outcry, and permitted another to use his unique user ID to access Globex.

On April 22, 2019, a Hearing Panel Chair of the CME Business Conduct Committee (“BCC”) entered an order finding that Stark failed to answer the charges issued against him. In failing to answer the charges, the Hearing Panel Chair further ordered that Stark was deemed to have admitted the charges issued and waived his right to a hearing on the merits of the charges.
Pursuant to CME Rule 407.C., a penalty hearing was held before a Panel of the BCC on May 23, 2019. The Panel found Stark guilty of committing the admitted charges.

PENALTY:

Based on the record and the Panel’s findings and conclusions, the Panel ordered Stark to pay a find in the amount of $90,000, and permanently barred Stark from: (1) applying for membership at any CME Group exchange; (2) direct or indirect access and use of any trading floor, electronic trading platform or clearing platform owned or operated by any CME Group exchange; and (3) affiliation with, employment by, or have a financial or beneficial interest in a Member or broker association.

EFFECTIVE DATE:

June 14, 2019