Effective April 1, 2008,
the CTR rules and enforcement programs of CME and CBOT related to
trading floor recordkeeping by individual members and clearing member firms will be fully
harmonized. The portion of the new rule related to the CTR monthly edit programs is presented
below and is followed by an FAQ that addresses questions about the CTR programs.
In addition to the changes necessary to harmonize the underlying CTR
programs and violation threshold levels, there are additional procedural changes that will
occur. For CME members, the current hardcopy status reports will be discontinued and the
reports will be available exclusively online in the Member Reporting System (“MRS”) for both CME
and CBOT members. For CBOT members, consistent with current CME practice, the CTR program will
become a monthly program. Additionally, the automatic sanctions generated by the program will
be reconsidered only upon a showing by the member within 15 days that the threshold level was
violated as a result of administrative or keypunching errors beyond the member’s control.
536.F. CTR Enforcement
Program and Sanction Schedule
CTR Monthly Enforcement Program
The CTR threshold levels for members with 100 or more transactions per month are as
follows:
Exception Type
Threshold Level
Bracket Exceptions
8% and
above
Time of Execution for
Verbal
Orders
8% and
above
Sequence
Errors
8% and
above
Quotes not found
in
5 or
more for futures
Time and
Sales
10 or
more for options and
back-month Eurodollar futures
A letter of warning shall be issued for a first occurrence of exceeding any
threshold. Subsequent occurrences within 12 months of exceeding a threshold shall result in
automatic fines in accordance with the following schedule:
Second
occurrence
$500
Third
occurrence
$1,000
Subsequent
occurrence(s) $5,000
A member will have 15 days after receipt of a letter of warning or a fine to present
evidence to the Market Regulation Department in support of having the letter of warning or fine
dismissed showing that administrative, clerical, or other errors by the clearing firm caused the
member to exceed the threshold level. If the member does not submit such evidence, or if the
Market Regulation Department determines that the evidence submitted is insufficient to reduce the
percentage below the threshold level, the letter of warning or fine shall be final and may not be
appealed.
The monthly CTR enforcement of timestamp exceptions for firms with 1,000 or more
transactions per month is 8% and above. A letter of warning shall be issued for a first
occurrence of exceeding the threshold. Subsequent occurrences within 12 months of exceeding
the threshold shall result in automatic fines in accordance with the following schedule:
Second
occurrence
$1,500
Third
occurrence
$5,000
Subsequent
occurrence(s)
$10,000
A firm will have 15 days after receipt of a letter of warning or a fine to present
evidence to the Market Regulation Department in support of having the letter of warning or fine
dismissed. If the firm does not submit such evidence, or if the Market Regulation Department
determines that the evidence submitted is insufficient to reduce the percentage below the threshold
level, the letter of warning or fine shall be final and may not be appealed.
Notwithstanding the provisions of this Section, the Market Regulation Department
may, at any time, refer matters that it deems egregious to the Probable Cause Committee.
Questions regarding this Advisory should be directed to the following
individuals in Market Regulation:
Lou Abarcar, Associate Director 312.648.3623
Terry Quinn,
Manager
312.435.3753
FAQ Related to CME and CBOT Rule 536.F.
CTR Monthly Edit Programs
Q1: What time period does the CTR
Program use to determine whether the threshold levels have been exceeded?
A1: Both the individual edit
programs and firm edit program are run for each calendar month.
Q2: How will historical CTR
violations be factored into the schedule of escalating sanctions?
A2: All parties will begin with
a clean CTR violation slate April 1, 2008, for the purposes of applying the automatic sanction
schedule. Therefore, a member’s first offense following the initiation of the new program will
result in a warning letter; subsequent offenses in the same program within a 12 month period will
result in escalating fines of $500, $1,000 and $5,000. As is presently the case, however,
egregious violations of recordkeeping rules may be referred directly to the Probable Cause
Committee for disciplinary action.
Q3: How many categories of error
exceptions (edits) are included in the “Bracket Exception Program”?
A3: Three. The Bracket
Exception Program includes edits for “? Bracket,” “Trade Price Not Found During Bracket” and “More
Than 1 Bracket per Card.”
Q4: Are there separate percentages
for each of the three edits in the “Bracket Exception Program”?
A4: No. There is only one
error percentage for this program and it is based on the total number of combined edits (“?
Bracket,” “Trade Price Not Found in Bracket” and “More than one Bracket per Card”) divided by the
total number of outright trades for the month. For example, a member who executes 300 outright
trades and has 10 errors for “? Bracket,” 7 errors for “Trade Price Not Found During Bracket” and 4
errors for “More than 1 Bracket per card” will have a total of 21 errors and a “Bracket Exception”
percentage of 7% (21/300).
Q5: What is the requirement for the
edit “More Than one Bracket per Card”?
A5: This edit applies to local
traders and to proprietary traders who record trades in the same manner as local traders. The
requirement is that all trades on a particular trading card must be from the same time
bracket. The only exception is that trades in the opening bracket “$” and the corresponding
15-minute bracket period may be on the same card.
Q6: How many categories of error
exceptions (edits) are included in the “Time of Execution Program”?
A6: Two. The “Time of Execution
Program” includes edits for “No Execution Time” and “Execution Time Not during Bracket.” An
edit for “No Execution Time” is cited if the broker filling a verbal order for another member fails
to record the time of execution to the nearest minute on his trading card. An edit for “
Execution Time Not during Bracket” is cited if the recorded execution time does not agree with the
reported time bracket.
Q7: How is the error percentage
calculated for the “Time of Execution Program”?
A7: The percentage represents
the total number of combined edits (“No Execution Time” and “Execution Time Not During Bracket”)
divided by the total number of process type “E” trades (CTI 3 trades).
Q8: When is a trade considered out of
sequence for the purposes of the “Sequence Errors Program”?
A8: The program analyzes time
brackets, card sequence numbers, and CME/CBOT derived execution times to detect sequence
errors. For example, if Card 1 is B bracket, Card 2 is C bracket with trades timed at 7:35:30
a.m., and Card 3 is B bracket with a trade timed at 7:25:00 a.m., the system will flag the trade on
Card 3 as being out of sequence.
Q9: What does the edit for “Quote not
found in Time and Sales” measure?
A9: This edit identifies
transactions in which the execution price of the trade was not reported in Time and Sales during
the relevant trading session.
Q10: Can the same transaction be counted in both
the “Quote not found in Time and Sales” and the “Bracket Exceptions” edit categories?
A10: Yes. If a trade’s price was not
reported in Time and Sales during the session, the member will receive an exception for “Quote not
found in Time and Sales” and “Trade Price Not Found during Bracket.”
Q11: How does the CTR Edit Program apply to
firms?
A11: The “Timestamp Exception Program”
applies to firms, and violations of the 8% threshold will result in sanctions in accordance with
the enforcement schedule set forth in Rule 536.F.
Q12: How many categories of edits are measured in
the “Timestamp Exception Program”?
A12: Nine. These edits include: “Time
In = Time Out,” “Invalid Timestamps” (times are blank or 999999), “Time In > Time Out,” “
Timestamps > Clearing Receipt Time,” “Timestamp In > Commodity End Time,” “Time Out <
Commodity Start Time,” “Time In > Keypunch Bracket,” “Time Out < Keypunch Bracket” and “No
Execution Timestamp for EFRP.”
Q13: How is the error percentage calculated for
the “Timestamp Exception Program”?
A13: The percentage represents the total
number of combined edits (See Question 12) divided by the total number of process type “T”
trades. (CTI 2, 3 & 4 orders).
Q14: Who issues CTR warnings and fines?
A14: All warnings and fines are issued
automatically based on the results of the CTR programs and are issued by Market Regulation
staff.
Q15: Can a CTR warning or fine be
appealed?
A15: Individuals have 15 days after receipt
of a notice of violation to present evidence to the Market Regulation Department showing that
errors beyond the member’s control (for example, data entry errors by firm personnel) caused the
threshold to be exceeded. If Market Regulation staff determines that the evidence is
sufficient to reduce the error percentage below the threshold level, the violation will be
dismissed.
Firms also have 15 days after receipt of a notice of violation to present evidence to the Market
Regulation Department to have the violation dismissed. The Market Regulation Department will
determine if such evidence is sufficient to reduce the error percentage below the threshold
level.
The decisions of Market Regulation regarding CTR actions are final and may not be
appealed. Additionally, fines will be issued in accordance with the reported sanction schedule
and will not be reduced.
Q16: How does the 12-month period referenced in
the enforcement schedule work?
A16: The 12-month period in the enforcement
schedule is a rolling 12-month period. For example, if a member were above the error threshold
level for the “Bracket Exception Program” in April 2008, a warning letter would be sent. A
second violation
of that program through March 2009 would result in a $500 fine. If this member were
to also violate the “Sequence Program” one time during that 12-month period, a warning letter
rather than a fine would be issued for that violation because the violation occurred in a different
exception program.
Q17: Do the exception programs apply across both
exchanges if an individual or firm is a member of both exchanges?
A17: Because CME and CBOT are separate
self-regulatory organizations, activity on each exchange is evaluated separately. As such, an
individual or firm active on both exchanges could be sanctioned by each exchange in the same month
if the thresholds were violated on both exchanges.
Q18: Are members and member firms able to view
statistical reports during the month to monitor their exception rates?
A18: Yes. CME and CBOT members can
view and, if desired, print their reports by logging onto the Member Reporting System (“MRS”)
. The address is
http://connect.cme.com. Login information can be
obtained by contacting the Customer Support Group at 312.930.3444. The current distribution of
hardcopy edit reports to CME members will be discontinued. Member firms can continue to access
their edit reports through Infopac.
Q19: Who are the Market Regulation contacts for
the various exception programs?
A19: Bracket Exception –
David Peloquin, 312.648.5415
Time of Execution –
Donna Bryan-Johnson, 312.435.3657
Quote not Found in Time and Sales –
Mike Forde, 312.341.7003
Sequence Errors –
Anthony Smith, 312.930.4528
Timestamp Exception –
Betsy Beers, 312.648.3783
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