• NOTICE OF DISCIPLINARY ACTION

      • #
      • CBOT-15-0115-BC-3
      • Effective Date
      • 19 July 2019
    • FILE NO.:

      CBOT 15-0115-BC

      MEMBER:

      SG Americas Securities, LLC (as successor to Newedge USA, LLC)

      CBOT RULE VIOLATIONS:

      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.

      (LEGACY) Rule 526 Block Trades (in part)

      The Exchange shall designate the products in which block trades shall be permitted and determine the minimum quantity thresholds for such transactions.

      CBOT Market Regulation Advisory Notice RA 1314-3 (in relevant part)

      10. Use of Nonpublic Information Regarding Block Trades (in part)

      Pre-hedging or anticipatory hedging of any portion of a block trade in the same product or a closely-related product based upon a solicitation to participate in a block trade is not permitted. A closely related product is a product that is highly correlated to, serves as a substitute for, or is the functional economic equivalent of the product being traded as a block.

      Counterparties to a block trade are permitted to initiate trades to hedge or offset the risk associated with the block trade following the consummation of the block trade, including during the period preceding the public report of the block trade by the Exchange.

      Except as provided above, parties privy to nonpublic information attendant to a block trade are prohibited from trading in the same product or a closely-related product for the purpose of taking advantage of such information prior to the public report of the block trade by the Exchange. This prohibition is not intended to preclude such parties from continuing to transact in the marketplace in the context of their normal business; rather, it precludes parties in possession of actionable nonpublic information regarding an imminent block trade or report of a block trade from specifically using such information to their advantage. Information regarding a block trade is considered to be nonpublic until such time that the block trade details have been disseminated to the marketplace by the Exchange or the information can otherwise be demonstrated to have become stale or obsolete.

      FINDINGS:

      Pursuant to an offer of settlement in which SGAS Americas Securities, LLC (“SGAS”) (as successor to Newedge USA, LLC)) neither admitted nor denied the rule violations upon which the penalty is based, on July 17, 2019, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that on multiple occasions between January 14, 2014, and March 18, 2014, SGAS had a riskless principal mandate in effect. Three traders employed by SGAG’s Canadian affiliate entered into separate transactions with third parties prior to consummating the block trades with customers and despite having previously received nonpublic information attendant to the customers’ requested block trades. Specifically, in each instance, after receiving a solicitation from a customer to participate in a block trade in various ethanol forward futures contracts, but prior to consummating the block trade with the customer, the traders executed a separate block trade with a liquidity provider in the same product and on the same side of the market as the customer’s proposed block trade in order to hedge the block trade subsequently executed opposite the customer. By entering into the hedge transaction and establishing the price of the hedge transaction prior to consummating the customer block trade, SGAS was able to guarantee a profit on the subsequent execution opposite the customer.

      As a result of this activity, SGAS realized profits in the amount of $9,715.

      The Panel also found that, in connection with this activity, SGAS failed to diligently supervise its traders in the conduct of their business relating to the Exchange by failing to give sufficient guidance and adequately train its employees on how to comply with its riskless principal mandate without pre-hedging block trades.

      The Panel concluded that as a result of the foregoing, SGAS violated CBOT Rules 432.W. and legacy Rule 526.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered SGAS to pay a fine in the amount of $350,000 ($50,000 of which is allocated to CBOT) and to disgorge profits in the amount of $9,715.

      EFFECTIVE DATE:

      July 19, 2019