NOTICE OF DISCIPLINARY ACTION

NON-MEMBER FIRM:                                

Direct Hedge Danmark Fondsmaeglerselskab AS

CBOT RULE VIOLATIONS:                  

Rule 526 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 the 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.

CME Group MRAN RA1908-5R

Definition of Block Trades (Section 1 In Part)

It is not permissible to facilitate the execution of block trades in Exchange-traded products on a system or facility accessible to multiple parties that allows for the electronic matching of or the electronic acceptance of bids and offers. Parties may use communication technologies to bilaterally request block quotes from one or more participants and to conduct privately negotiated block trades. Parties may also utilize technologies supported by third parties which allow for the electronic posting of indicative block markets displayed to multiple market participants. However, block trades executed between parties based on such electronically displayed indicative markets may be transacted only through direct bilateral communications involving the broker, where applicable, and the parties to the trade.

Block Trade Submission (Section 7 In Part)

The execution time of a block trade is the time that the trade is consummated, which is the time that the parties agree to the trade in principle. In that regard, spread block trades are deemed consummated at the time the parties agree to the differential or combination price, not the time the leg prices are determined. Market participants must accurately report the execution time of the block trade.

Rule 432. General Offenses

It shall be an offense:

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

FINDINGS:                       

Pursuant to an offer of settlement in which Direct Hedge Danmark Fondsmaeglerselskab AS (“Direct Hedge”) neither admitted nor denied the Rule violations upon which the penalty is based, on December 9, 2020, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that, between October 2019, and April 2020, Direct Hedge submitted block trades it executed for customers in various contract months of Urea (Granular) FOB US Gulf futures, Urea (Granular) FOB Middle East futures, Urea (Granular) FOB Egypt futures and Urea (Granular) CFR Brazil futures contracts to the Exchange with inaccurate execution times and also failed to report one block trade to the Exchange within the required time period following execution. The Panel further found that between January 2020, through April 2020, Direct Hedge operated a proprietary trading platform that allowed its customers to execute block trades that did not involve direct bilateral communications between customers and Direct Hedge. For example, the platform allowed for the electronic acceptance of bids and offers, demonstrating that the block trades were not privately negotiated. Moreover, the Panel found that Direct Hedge failed to diligently supervise its employees or agents in its operation of the trading platform or in its reporting of block trades to the Exchange. The Panel concluded that Direct Hedge thereby violated CBOT Rules 526.F. and 432.W.

PENALTY:                         

In accordance with the settlement offer, the Panel ordered Direct Hedge to pay a fine of $95,000.

EFFECTIVE DATE:                               

December 11, 2020