NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CBOT 11-8292-BC

NON-MEMBER FIRM:

Kyte Broking Limited

CBOT RULE VIOLATIONS:

Rule 432 (“General Offenses”) (in part)

It shall be an offense:
W. for a Member to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.

Rule 534. Wash Trades Prohibited

No person shall place or accept buy and sell orders in the same product and expiration month, and, for a put or call option, the same strike price, where the person knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk (transactions commonly known or referred to as wash sales). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violate the prohibition on wash trades. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.

Rule 539. Prearranged, Pre-Negotiated, and Noncompetitive Trades Prohibited (in part)

A. General Prohibition

No person shall prearrange or pre-negotiate any purchase or sale or noncompetitively execute any transaction, except in accordance with Sections B. and C. below.

C. Pre-Execution Communications Regarding Globex Trades

Parties may engage in pre-execution communications with regard to transactions executed on the Globex platform where one party (the first party) wishes to be assured that a contra party (the second party) will take the opposite side of the order under the following circumstances:

(4) In the case of options orders, subsequent to the pre-execution communication, a Request for Quote (“RFQ”) for the particular option or option spread or combination must be entered into Globex. Thereafter, a Request for Cross (“RFC”) order which contains both the buy and the sell orders must be entered into Globex no less than fifteen (15) seconds and no more than thirty (30) seconds after the entry of the RFQ. The RFQ and the RFC order must be entered within the same trading session. Failure to enter the RFC order within 30 seconds after the entry of the RFQ will require a new RFQ to be entered prior to the entry of the RFC order, which must be entered in accordance with the time parameters described above in order to proceed with the trade.

Rule 576. Identification of Globex Terminal Operators

Each Globex terminal operator shall be identified to the Exchange, in the manner prescribed by the Exchange, and shall be subject to Exchange rules. If user IDs are required to be registered with the Exchange, it is the duty of the clearing member to ensure that registration is current and accurate at all times. Each individual must use a unique user ID to access Globex. In no event may a person enter an order or permit the entry of an order by an individual using a user ID other than the individual’s own unique user ID.

FINDINGS:

Pursuant to an offer of settlement in which Kyte Broking Limited (“Kyte”) neither admitted nor denied the rule violations upon which the penalty is based, on July 24, 2014, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel”) found that Kyte voluntarily submitted itself to the jurisdiction of the BCC for purposes of settling this matter, and that between September 2010 and November 2010, in the December 2010 Treasury futures and options on futures contracts, Kyte failed to supervise its brokers who improperly crossed a trade in the December 2010 10-Year Treasury Note options on futures contracts without adhering to the requisite Request for Quote and Request for Cross procedures. Kyte brokers also crossed a trade in the December 2010 10-Year Treasury Note futures, and entered into a wash trade in the December 2010 Two-Year Treasury Note futures. Additionally, during this time period, Kyte allowed six different brokers to use the same Tag 50.

As a result, the Panel found that Kyte violated Rules 432.W., 534, 539, and 576.

PENALTY:

In accordance with the settlement offer, the Panel ordered Kyte to pay a fine of $50,000.

EFFECTIVE DATE:

July 28, 2014