• NOTICE OF DISCIPLINARY ACTION

      • #
      • NYMEX 17-0744-BC
      • Effective Date
      • 30 January 2020
    • NON-MEMBER:

      COQUEST INC.

      NYMEX RULES: RULE 526. BLOCK TRADES

      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.

      MARKET REGULATION ADVISORY NOTICE RA1618-5 and RA1701-5

      Parties to a potential block trade may engage in pre-hedging or anticipatory hedging of the position that they believe in good faith will result from the consummation of the block trade, except for an intermediary that takes the opposite side of its own customer order. In such instances, prior to the consummation of the block trade, the intermediary is prohibited from offsetting the position established by the block trade in any account which is owned or controlled, or in which an ownership interest is held, or for the proprietary account of the employer of such intermediary. The intermediary may enter into transactions to offset the position only after the block has been consummated.

      FINDINGS:

      Pursuant to an offer of settlement that Coquest Inc. (“Coquest”) presented at a hearing on January 28, 2020, in which Coquest neither admitted nor denied the factual allegations or rule violations upon which the below penalty is based, a Panel of the NYMEX Business Conduct Committee (“BCC Panel”) found that, between January 2017 and July 2017, Coquest executed numerous block trades for customers in various NYMEX Energy options and futures contracts that Coquest failed to report to the Exchange within the required time period following execution, as well as failed to report accurate trade details for these block trades to the Exchange. The Panel further found that, during this timeframe, Coquest, after receiving the solicitation of a block trade from a customer, but prior to consummating the block trade, traded opposite the customer, in numerous NYMEX Energy options and futures contracts, through a Coquest-controlled account, always at a price advantage to the Coquest-controlled account.

      The BCC Panel found that, as a result, Coquest violated NYMEX Rules 526 and 526.F.

      PENALTY:

      In accordance with the settlement offer, the BCC Panel ordered Coquest to pay a monetary fine in the amount of $150,000 and (2) to disgorge profits in the amount of $74,365.