• NOTICE OF DISCIPLINARY ACTION

      • #
      • COMEX 18-0922-BC
      • Effective Date
      • 30 January 2020
    • MEMBER:

      ADM Investor Services, Inc.

      EXCHANGE RULES:

      Rule 432. General Offenses (in part)

      It shall be an offense:

      Q. to commit an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange;

      W. for any part to fail to diligently supervise its employees and agents in the conduct of their business related to the Exchange;

      X. to aid and abet the commission of any offense against the Exchange or any violation of an Exchange Rule.

      Rule 536. Recordkeeping Requirements for Pit, Globex, and Negotiated Trades (in part)

      B. Globex Order Entry

      2. Electronic Audit Trail Requirements for Electronic Order Routing/Front-End Systems

      Entities certified by the Exchange to connect an order routing/front-end system to the Globex platform through the CME iLink® gateway are responsible for creating an audit trail of each message entered into Globex. Clearing members guaranteeing a connection to Globex are responsible for maintaining or causing to be maintained the electronic audit trail for such systems. This electronic audit trail must be maintained for a minimum of 5 years and clearing members must have the ability to produce this data in a standard format upon request of Market Regulation.

      Each such electronic audit trail must be complete and accurate and account for every electronic communication such system receives or generates, including any electronic communication such system receives from Globex.

      This electronic audit trail must contain all order receipt, order entry, order modification, and response receipt times to the highest level of precision achievable by the operating system, but at least to the millisecond. The times captured must not be able to be modified by the person entering the order. The data must also contain all Fix Tag information and fields which should include, but is not limited to the following:

      a record of all fields relating to order entry, including transaction date, product, Exchange code, expiration month, quantity, order type, order qualifier, price, buy/sell indicator, stop/trigger price, order number, unique transaction number, account number, session ID, Tag 50 ID, automated or manual indicator (Tag 1028), self-match prevention ID (Tag 7928) where applicable, host order number, trader order number, clearing member, type of action, action status code, customer type indicator, origin, and timestamps. For executed orders the audit trail must record the execution time of the trade along with all fill information.

      In the case where the guaranteeing Clearing Firm has a direct connect client that is another Clearing Firm or an Equity Member Firm, the Clearing Firm may notify the client Clearing Firm or Equity Member Firm that it is their obligation to maintain the electronic audit trail. Upon execution of this written notice, it shall be the duty of the client Clearing Firm or Equity Member Firm to maintain an electronic audit trail pursuant to this rule. Nothing herein relieves any of the above-referenced firms from compliance with the applicable recordkeeping provisions of CFTC Regulations, including Regulation 1.31 or 1.35.

      Rule 561. Submissions of Large Positions and Volume Threshold Accounts (in part)

      C. Obligations of Omnibus Accounts and Foreign Brokers

      Failure by an omnibus account or foreign broker to submit required information may result in a hearing by the Business Conduct Committee and result in limitations, conditions or denial of access of such omnibus account or foreign broker to any Exchange market. Notwithstanding the above, clearing members carrying such accounts remain responsible for obtaining and providing to the Exchange information regarding the ownership and control of positions in circumstances where an omnibus account or foreign broker has failed to provide the information to the Exchange. Clearing firms must require their clients to provide accurate and timely owner and control information, including any material changes.

      FINDINGS:

      Pursuant to an offer of settlement in which ADM Investor Services, Inc. (“ADMIS”) neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on January 28, 2020, a Panel of the Commodity Exchange (“the Exchange”) Business Conduct Committee (“Panel”) found that beginning on or about March 12, 2012, ADMIS learned that one of its brokerage firm clients (“client”) automatically offset omnibus account positions in futures contracts using the FIFO method. This information was not escalated to the appropriate person at ADMIS and, beginning on February 15, 2017, and continuing at least until May 21, 2018, one or more ADMIS employees was aware a client was misreporting its open positions, and provided incorrect guidance to, and otherwise assisted, the client regarding reporting inaccurate position data in Copper futures contracts to the Exchange. As a result, inaccurate open interest data was published to the market. The Panel therefore found that ADMIS failed to require the client to provide accurate and timely owner and control information and continued to report inaccurate information regarding the ownership and control of the positions through May 2018, in violation of Exchange Rules 432.Q., 432.X., and 561.C.

      Beginning in September 2017, the Exchange began the first of multiple investigations into the same client’s customer trading activity. The client’s responses to the Exchange’s document requests were untimely and inaccurate. On January 25, 2018, the Exchange requested assistance from ADMIS to provide the client’s accurate audit trail data. On multiple occasions continuing through May 2018, ADMIS provided the Exchange with inaccurate audit trail data that was provided by the client. The Panel found that ADMIS thereby violated Exchange Rule 536.B.2.

      Finally, the Panel found that ADMIS failed to take effective measures to intervene, correct, and ensure the accuracy of: (1) its client’s purchase and sales data reporting, beginning on March 12, 2012, and continuing through May 2018; and (2) ADMIS’s own responses to the Exchange’s investigative requests beginning in January 2018 and continuing through May 2018. In addition, ADMIS failed to properly supervise employees regarding escalation procedures when an ADMIS client was discovered to have violated Exchange rules. The Panel therefore found that ADMIS violated Exchange Rule 432.W.

      PENALTY:

      In accordance with the settlement offer, the Panel ordered ADMIS to pay a fine of $650,000.