NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CBOT 10-04524-BC

MEMBER:

JOHN PEAVY (PV)
 

CBOT 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. No person shall prearrange or pre-negotiate any purchase or sale or non- competitively execute any transaction.

Rule 532 – DISCLOSING ORDERS PROHIBITED

No person shall disclose another person's order to buy or sell except to a designated Exchange official or the CFTC, and no person shall solicit or induce another person to disclose order information. An order for pit execution is not considered public until it has been bid or offered by open outcry. No person shall take action or direct another to take action based on non-public order information, however acquired. The mere statement of opinions or indications of the price at which a market may open or resume trading does not constitute a violation of this rule.

(legacy ) Rule 432. – GENERAL OFFENSES

It shall be an offense:

B. to engage in fraud, bad faith, or in conduct or proceedings inconsistent with just and equitable principles of trade.

FINDINGS:

Pursuant to an offer of settlement in which John Peavy (“Peavy”) neither admitted nor denied the rule violations upon which the penalty is based for purposes of resolving this matter, on December 19, 2012, a Panel of the CBOT Business Conduct Committee (the “Panel”) found that from April 1, 2009 through March 21, 2010, Peavy, a broker in the Wheat futures pit, engaged in over 160 prearranged, round-turn transactions of Wheat futures contracts for his customers. The trades were part of a strategy that involved Peavy illegally

offsetting customer orders opposite a single accommodating local trader for that local’s personal account. On each occasion, Peavy simultaneously held customer orders to buy and sell the same Wheat futures contract and offset all or a portion of those orders by directing the trades noncompetitively to the accommodating local, at or near the same time, often at a one cent price differential in favor of the accommodator. As a result, the accommodating trader profited for his personal account.

The Panel further found on 35 occasions, the accommodating trader engaged in round-turn “money pass” transactions by noncompetitively buying and selling identical quantities of the same Wheat futures contract opposite Peavy who was trading for his personal account, often at a one cent price differential, thereby passing money to Peavy in the form of trading profits .

The Panel found that in so doing, Peavy violated CBOT Rules 521, 539, 532.A. and (legacy) CBOT Rule 432.B.

PENALTY:

In accordance with the settlement offer, the Panel ordered Peavy to serve a 25- year bar from: (i) applying for membership at any exchange owned, controlled, or operated by CME Group Inc., and (ii) directly or indirectly accessing, placing orders, or executing trades on any trading or clearing platform owned, controlled, or operated by CME Group Inc., including, but not limited to, the CME Globex electronic trading platform. The suspension shall run from December 21, 2012, through December 20, 2037, inclusive.

EFFECTIVE DATE:

December 21, 2012