NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CBOT 10•04524-BC

MEMBER:

JOHN RAUHAUS (RAU)

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.

{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.

l.l. to fail to appear before the Board, Exchange staff or any investigative or hearing committee at a duly convened hearing or in connection with any investigation.

FINDINGS:

On November 28, 2012, a panel of the Chicago Board of Trade ("CBOT"} Business Conduct Committee ("BCC"} took disciplinary action against John Rauhaus {"Rauhaus"). On October 16, 2012, a Hearing Panel Chair of the CBOT BCC found that Rauhaus had failed to file an answer to charges issued against him by a panel of the CBOT Probable Cause Committee. The Hearing Panel Chair accordingly ruled that the charges issued against Rauhaus were deemed admitted, and through this admission, Rauhaus had forfeited his right to a hearing on the merits of the charges. Pursuant to CBOT Rule 407 and 408, a sanction hearing was held before a Panel of the CBOT BCC ("Panel") on November 28, 2012, related to these admitted charges.

The Panel found Rauhaus guilty of having committed the admitted charges, which alleged that from Aprill, 2009 through March 31, 2010, Rauhaus, a local in the Wheat futures pit, knowingly and intentionally engaged in over 160 prearranged transactions of Wheat futures contracts opposite a single broker's customer orders. The trades were part of a strategy in which the broker filled his orders by illegally offsetting them opposite Rauhaus. On each of these occasions, the broker simultaneously held customer orders to buy and sell the same Wheat contract and offset all or a portion of those orders by directing the trades noncompetitively to Rauhaus, at or near the same time, often at a one cent price differential in favor of Rauhaus. As a result, Rauhaus profited
$103,650.

The Panel further found on 35 occasions, Rauhaus engaged in round-turn "moneypass" transactions by noncompetitively buying and selling identical quantities of the same Wheat futures contract opposite the same broker, trading for his personal account, often at a one cent price differential, thereby passing money to the broker in the form of trading profits. The Panel found that in so doing, Rauhaus violated CBOT Rules 521, 539.A. and {legacy) CBOT Rule 432.8.

Finally, the Panel found Rauhaus failed to appear before Exchange staff to answer questions in connection with this investigation in violation of {legacy)
CBOT Rule 432.L.1.
 

PENALTY:

In accordance with its findings, the Panel ordered Rauhaus to {i) disgorge $103,650 in ill-gotten gains; and (ii) serve a permanent bar from: (1) applying for membership at any exchange owned, controlled, or operated by CME Group Inc., (2) 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; and {3) affiliating with any Member of any CME Group Exchange in connection with business conducted on or subject to Exchange Rules.
 

EFFECTIVE DATE:

November 30, 2012