NOTICE OF DISCIPLINARY ACTION

MEMBER:                   

Michael Scott Arenson

CME RULE VIOLATIONS:             

Rule 521          Requirements for Open Outcry Trades (in part)

In open outcry trading, bidding and offering practices must at all times be conducive to the competitive execution of transactions. All open outcry transactions, including spread and combination transactions, shall be made openly and competitively in the pit designated for the trading of the particular transaction.  No bid or offer shall be specified for acceptance by a particular trader. Transactions may take place only at the best price available in the open outcry market at the time the trade occurs.

Rule 539           Prearranged, Pre-Negotiated and Noncompetitive Trades Prohibited (in part)

A.     General Prohibition

No person shall prearrange or pre-negotiate any purchase or sale or noncompetitively execute any transaction.

Rule 515          Registration and Identification of Broker Associations

MRAN RA1602-2 [Effective April 1, 2016] (in relevant part)

Best and Only Bid and Offer Documentation

In circumstances where two members of the same broker association trade opposite one another in a contract month subject to the trading restrictions set forth above, and at the time the trade is executed one member is the best and only bid and the other member is the best and only offer, the quantity associated with the execution will be removed from each member’s monthly intra-association percentage restrictions provided that all of the following requirements are met:

1.              A note is made on the trading document by one of the two members involved in the trade indicating that at the time the trade was executed, one member was the best and only bid and the other member was the best and only offer in the pit. Noting “B+O” on the trading document is sufficient for this purpose. That notation must be made contemporaneously with the trade being made.

2.              The time of the trade to the nearest minute is recorded on the trading document containing the B+O notation.

3.              A signature and a legible acronym of a member (or the signature of an Exchange official) attesting to the fact that the members were the best and only bid and best and only offer at the time the trade was made must be noted on the trading document. The signature and acronym of the member (or the signature of the Exchange official) must be obtained as soon as possible after the trade has been made. Members executing the trade may request signatures only from members (or Exchange officials) who were present when the trade was made. Members signing such trading documents may do so only if they were present and can attest to the fact that the trade was a best and only bid and offer at the time it was made. Members of the same broker association are not eligible to sign as a witness for this purpose.

4.              Copies of the documentation are forwarded to the Market Regulation Department….

Properly documented best and only bids and offers will be removed from each member’s intra-association trading volume and total trade volume when calculating compliance with the applicable trading restrictions. If the removal of the volume associated with the best and only bids and offers results in the reduction of a member’s intra-association trading percentage to a non-violative level, the member will not be deemed to have violated Rule 515.E.

FINDINGS:                    

Pursuant to an offer of settlement in which Michael Scott Arenson neither admitted nor denied the rule violations upon which the penalty is based, on April 22, 2021, a Panel of the Chicago Mercantile Exchange (“CME”) Business Conduct Committee (“Panel”) found that on October 18, 2018, and January 4, 2019, Arenson, a broker in the Eurodollar options on futures pit, non-competitively traded customer orders opposite other brokers within the same broker association without openly and competitively bidding or offering the orders in the pit. Specifically, the Panel found that after receiving buy and sell orders for December 2018 Eurodollar put strategies and March 2019 Eurodollar call strategies, Arenson prearranged the execution of the entire smaller quantity of the opposing buy or sell order opposite the larger buy or sell order held by another broker within his broker association.

In addition, the Panel found that a customer order executed between Arenson and another broker in his broker association was improperly documented as resulting from a “best and only bid and offer” (“B+O”), as the brokers non-competitively executed the order intra-association before trading the remaining quantity in the pit. The Panel thereby concluded that Arenson violated CME Rules 521, 539.A., and 515.

PENALTY:                   

In accordance with the settlement offer, the Panel ordered Arenson to pay a fine in the amount of $75,000, and to have his access to all CME Group trading floors and direct and indirect access to all trading platforms owned or controlled by CME Group suspended for a period of 45 business days. The suspension shall run from August 25, 2021, through October 27, 2021, inclusive.  

EFFECTIVE DATE:                         

April 26, 2021