NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CBOT 09-04448-MS-BC

MEMBER:

NEWEDGE USA, LLC.

CBOT RULE VIOLATION:

Rule 716. Duties of Clearing Members

Prior to the last day of trading in a physically delivered contract, each clearing member shall be responsible for assessing the account owner’s ability to make or take delivery for each account on its books with open positions in the expiring contract. Absent satisfactory information from the account owner, the clearing member is responsible for ensuring that the open positions are liquidated in an orderly manner prior to the expiration of trading.

FINDINGS:

Pursuant to an offer of settlement in which Newedge USA, LLC (“Newedge”) neither admitted nor denied the rule violations upon which the penalty is based, on April 5, 2011, a panel of the CBOT Business Conduct Committee found that on December 3, 2009, a non-member customer of Newedge held a short December 2009 Denatured Fuel Ethanol (“Ethanol”) futures position of 103 contracts beyond the contract’s expiration at a time when the customer had been authorized to issue and register a maximum of only 92 shipping certificates for delivery. As the clearing member carrying an account required to make delivery, Newedge bore complete responsibility for the performance of all delivery requirements. Three hours after the 10:00 a.m. December 4, 2009, delivery deadline, Newedge’s customer was able to contact an eligible counterparty for an Exchange for Physical (“EFP”) transaction, the execution of which discharged Newedge’s delivery obligations for the remaining 11 short positions. As the counter-party was not identified until after the 10:00 a.m. delivery deadline, the Exchange’s clearing and delivery processes were likewise delayed. The panel found that in so doing Newedge violated CBOT Rule 716.

PENALTY:

In accordance with the settlement offer the Panel fined Newedge $50,000, and directed Newedge to provide documented proof of its policies and procedures regarding settlements and deliveries of physically delivered contracts implemented pursuant to CBOT Rule 716.

 

EFFECTIVE DATE:

April 13, 2011