NOTICE OF DISCIPLINARY ACTION

NON-MEMBER:

X-Change Financial Access

CME RULE VIOLATIONS:

RULE 526. BLOCK TRADES (In Part)

The Exchange shall designate the products in which block trades shall be permitted and determine the minimum quantity thresholds for such transactions. The following shall govern 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 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 MARKET REGULATION ADVISORY NOTICE RA2109-5:

Block Trade Submission Requirements to CME Clearing (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. Market participants must accurately report the execution time of the block trade. The reporting of inaccurate execution times may result in disciplinary action.

Use of Nonpublic Information Regarding Block trades (Section 11, In Part)

Parties privy to nonpublic information regarding the consummated block trade may not disclose such information to any other party prior to the public report of the block trade by the Exchange.

Rule 432. General Offenses (In Part):

It shall be an offense:

W. for any party 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 X-Change Financial Access (“XFA”) neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on April 10, 2024, a Panel of the Chicago Mercantile Exchange Business Conduct Committee (“Panel”) found that between September 1, 2021, and August 21, 2022, as well as on March 10, 2023, XFA submitted multiple block trades in various E-Mini S&P 500 options contracts to the Exchange with inaccurate execution times and also failed to report block trades to the Exchange within the required time period following execution. In addition, between November 1, 2022, and November 30, 2022, as well as between August 4, 2023, and August 21, 2023, XFA failed to report multiple block trades in various E-Mini S&P 500 options contracts to the Exchange within the required time period following execution.

The Panel further found that brokers employed by XFA disclosed nonpublic information regarding consummated block trades prior to the public report of the block trades on the Exchange. Specifically, XFA brokers negotiated block trades with multiple local traders in online video conferences. During the video conferences, XFA brokers confirmed the date, execution time, contract month, price, and quantity of certain block trades with the local traders who acted as counterparties to the trades. In doing so, XFA brokers also disclosed this information to local traders who were in the online video conference but were not involved in the trades’ negotiation and consummation. Further, on August 21, 2023, an XFA broker impermissibly disclosed the identity of a potential and actual counterparty while negotiating a block trade.

The Panel also found that during these time frames XFA failed to diligently supervise the execution of block trades by its employees to enable brokers to comply with Exchange block trade reporting requirements.

The Panel thereby concluded that XFA violated CME Rules 526, 526.F., and 432.W.

PENALTY:

In accordance with the settlement offer, the Panel ordered XFA to pay a $170,000 fine.