NOTICE OF DISCIPLINARY ACTION

MEMBER FIRM:              

CARGILL, INCORPORATED

CBOT RULE VIOLATIONS:                  

Rule 432 (“General Offenses”) (in relevant part)

It shall be an offense:

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

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.

FINDINGS:

Pursuant to an offer of settlement in which Cargill, Incorporated (“Cargill”) neither admitted nor denied the rule violations upon which the penalty is based, on September 21, 2020, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“Panel”) found that in November and December 2017, Cargill was a party to a joint marketing agreement with a Grain Merchant, in which Cargill owned and leased two grain elevators to the Grain Merchant in exchange for a share of the profits realized from the storage and marketing of the grain.  Starting in early November 2017, Cargill and the Grain Merchant discussed a marketing plan to register and deliver a significant amount of December 2017 Soft Red Winter Wheat (“SRW”) to benefit the Grain Merchant’s futures and options positions related to the grain subject to the joint marketing agreement.  Specifically, the strategy was to widen the wheat spread and have the market trade into the Grain Merchant’s resting bids; Grain Merchant would then repurchase certificates at reduced prices.  Cargill and the Grain Merchant believed that the size and timing of the registration, coupled with the wheat economics, would result in the widening of the spread.

Further, Cargill and the Grain Merchant sold SRW to the domestic milling market, which had the effect of limiting the demand for SRW in the month prior to its registration.

On November 29, 2017, the Grain Merchant registered 2,000 SRW certificates,  and, as anticipated, the market widened to trade into its resting bids at prices beneficial to its wheat futures position.  Cargill understood that the Grain Merchant would register even more SRW certificates in the event its resting bids were not filled. Further, the registration by the Grain Merchant was only economical due to the large size and minimum load out cadence.

Finally, between December 4 and December 22, 2017, the Grain Merchant, in connection with the joint marketing agreement with Cargill, repurchased 1,330 of the 2,000 certificates through the delivery process and the secondary market at lower prices than the original registration.

The Panel concluded that Cargill thereby violated CBOT Rules 432.B.2. and 432.Q.

PENALTY:                         

In accordance with the settlement offer, the Panel ordered Cargill to pay a fine of $500,000.

EFFECTIVE DATE:                               

September 23, 2020