NOTICE OF DISCIPLINARY ACTION

NON-MEMBER:

FOREMOST TRADING, LLC

EXCHANGE RULES:

EXCHANGE RULE 432. GENERAL OFFENSES

It shall be an offense:

B.1. to engage in fraud or bad faith;

B.2. to engage in conduct or proceedings inconsistent with just and equitable principles of trade;

G. to prearrange the execution of transactions in Exchange products for the purpose of transferring equity between accounts;

T. to engage in dishonorable or uncommercial conduct;

W. for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.

EXCHANGE RULE 433 STRICT LIABILITY FOR THE ACTS OF AGENTS

Pursuant to Section 2(a)(1)(B) of the Commodity Exchange Act, and notwithstanding Rule 432.W., the act, omission, or failure of any official, agent, or other person for any party within the scope of his employment or office shall be deemed the act, omission, or failure of the party, as well as of the official, agent or other person who committed the act.

FINDINGS:

Pursuant to an offer of settlement Foremost Trading, LLC (“Foremost”) presented at a hearing on June 25, 2020, in which Foremost neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the COMEX Business Conduct Committee (“Panel”) found that on multiple dates during the time period from June 1, 2015 through June 30, 2016 (“relevant time period”), a trader acting as an agent of Foremost (“Foremost Trader”) engaged in dishonorable and uncommercial conduct inconsistent with just and equitable principles of trade in Gold options and Silver futures and options. The Foremost Trader engaged in over three hundred “matched” trades across all four CME Group Designated Contract Markets, which were trades in which the Foremost Trader’s Tag 50 IDs were on both sides of the market and the trade involved a full or partial match between two separate orders on opposite sides of the market. These matched trade instances typically involved a customer account (“Customer A”) over which the Foremost Trader had Power of Attorney on one side of the trade and one of Foremost’s proprietary accounts on the opposite side. Many of these trades occurred in options markets with extremely low liquidity to ensure the match between these accounts.

The Panel found that on multiple occasions, the matched trades consisted of the Foremost Trader pre-arranging round-turn transactions between a Foremost account and Customer A’s account for the purpose of transferring equity from Customer A’s account to Foremost account(s) which resulted in the Foremost’s account receiving advantageous prices.

The Panel further found that during the relevant time period, the Foremost Trader’s conduct disadvantaged Customer A’s account in the amount of $479,858.93.

The Panel concluded that, pursuant to Exchange Rule 433, Foremost is strictly liable for the acts of the Foremost Trader, whose conduct the Panel found violated Exchange Rules 432.B.1., 432.B.2., 432.G. and 432.T. In addition, the Panel found that Foremost failed to implement appropriate monitoring procedures and failed to appropriately train the Foremost Trader regarding CME Group rules and regulations. Accordingly, the Panel concluded that Foremost failed to diligently train and supervise the Foremost Trader in a manner sufficient to ensure the Foremost Trader’s conduct was consistent with Exchange Rules. The Panel thereby concluded that Foremost violated Exchange Rule 432.W.

PENALTY:

In accordance with the settlement offer, the Panel ordered Foremost to pay a fine in the amount of $125,000 ($20,000 of which is payable to COMEX) and that Foremost and the Foremost Trader jointly and severally pay restitution in the amount of $479,858.93 ($14,237.95 of which is attributed to activity on COMEX).

Please see companion cases CME/CBOT/NYMEX 16-0484-BC.