NOTICE OF DISCIPLINARY ACTION

MEMBER:

Central States Enterprises, 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.

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. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.

FINDINGS:

Pursuant to an offer of settlement in which Central States Enterprises, LLC neither admitted nor denied the rule violations upon which the penalty is based, on May 27, 2020, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“Panel”) found that on five occasions between November 2018, and January 2019, an employee of Central States entered buy and sell orders in various Oats options contracts, resulting in 154 self-matched contract sides, for accounts in which Central States maintained ownership and control on both sides of the transactions. Specifically, the employee traded both a hedge account and a speculative account for Central States. In an attempt to obtain a more beneficial fill for the hedge account, the employee did the following: asked for a market from a floor broker; entered opposing orders for each account with the floor broker in the pit, which improved the existing bid/ask spread; and instructed the broker to trade the speculative account opposite the hedge account for any remaining quantity of the hedge-account order if no other market participants were interested in trading at that price.

The Panel also found that Central States failed to properly advise and train its employee as to relevant Exchange Rules regarding wash trading.

The Panel concluded that Central States thereby violated CBOT Rules 432.W. and 534.

PENALTY:

In accordance with the settlement offer, and after taking into consideration that Central States self-reported the activity to CME Group Inc., the Panel ordered Central States to pay a fine of $50,000.