NOTICE OF DISCIPLINARY ACTION

MEMBER:

William Kerstein

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.

CME Rule 530. Priority of Customers’ Orders (in part)

A member shall not buy (sell) a futures contracts, buy (sell) a call option or sell (buy) a put option for his own account, an account in which he has a direct or indirect financial interest, or an account over which he has discretionary trading authority when he is in possession of an executable order for another person to buy (sell) a futures contract, buy (sell) a call option or sell (buy) a put option in the same product, regardless of the venue of execution.

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.

FINDINGS:

Pursuant to an offer of settlement in which William Kerstein neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on May 18, 2021, a Panel of the Chicago Mercantile Exchange (“CME”) Business Conduct Committee (“Panel”) found that on multiple occasions between June 28, 2018, and June 13, 2019, Kerstein, while acting as a local in the Standard and Poor’s 500 Stock Price Index (“S&P”) futures pit, prearranged and noncompetitively executed trades opposite other local traders. Further, Kerstein executed the trades opposite the locals without openly bidding or offering the orders. Specifically, the Panel found that after the locals initiated a position for S&P futures in the pit, Kerstein, through his clerk, executed a trade on Globex for a corresponding quantity of E-mini S&P futures contracts in the opposite direction of the locals’ S&P futures pit trade. Shortly thereafter, Kerstein and the locals carded up a trade opposite each other in order to offset positions in both accounts. The Panel concluded that Kerstein violated Rules 521 and 539.

Additionally, the Panel found that on two occasions during this same time period, Kerstein, while in possession of an executable customer order for one or more S&P contracts, executed a trade for his personal account in the same direction as the customer order. The Panel concluded that Kerstein violated Rule 530.

PENALTY:

In accordance with the settlement offer, the Panel ordered Kerstein to pay a $40,000 fine and suspended Kerstein from all direct and indirect access to any designated contract market, derivatives clearing organization, or swap execution facility owned or controlled by CME Group Inc. beginning on the effective date below and continuing for 30 business days after the fine is paid in full.

EFFECTIVE DATE:

May 20, 2021