• NOTICE OF DISCIPLINARY ACTION

      • #
      • CME-16-0539-BC
      • Effective Date
      • 15 August 2019
    • FILE NO.:

      CME 16-0539-BC

      MEMBER FIRM:

      R.J. O’Brien & Associates, LLC

      CME RULE VIOLATIONS:

      Rule 526. Block Trades (in relevant part) (LEGACY)

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

      F. Unless otherwise agreed to by the principal counterparties to the block trade, the seller, or in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported to the Exchange within the time period and in the manner specified by the Exchange. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.

      CME Group Market Regulation Advisory Notice RA1604-5 (in relevant part) (LEGACY)

      Use of Nonpublic Information Regarding Block Trades (in relevant 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 non-public information attendant to a block trade are prohibited from trading in the same product or 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 marketplace by the Exchange or the information can be otherwise be demonstrated to have become stale or obsolete.

      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:

      Pursuant to an offer of settlement in which R.J. O’Brien & Associates, LLC (“RJO”) neither admitted nor denied the Rule violations upon which the penalty is based, on August 13, 2019, a Panel of the Chicago Mercantile Exchange Business Conduct Committee (“Panel”) found that on June 16, 2016, June 23, 2016, and June 24, 2016, an employee of RJO pre-hedged block trades in Euro FX options strategies by executing trades on Globex on the opposite side of the market in the same product as the requested block trade prior to consummation of the block trade. As a result of this activity, RJO realized an aggregate profit of $110,050. The Panel also found that the RJO employee failed to report two of the block trades to the Exchange within the required time period following execution. In addition, two RJO employees used each other’s Tag50 User IDs to execute trades. The Panel thereby concluded that RJO violated CME Rules 526, 526.F., and 576.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered RJO to pay a fine of $80,000, and to pay disgorgement in the amount of $110,050.

      EFFECTIVE DATE:

      August 15, 2019