Macquarie Bank Limited
CBOT RULE VIOLATIONS:
538.A. Nature of an EFRP (LEGACY)
An EFRP consists of two discrete but related simultaneous transactions. One party to the EFRP must be the buyer of (or the holder of the long market exposure associated with) the related position and the seller of the corresponding Exchange contract. The other party to the EFRP must be the seller of (or the holder of the short market exposure associated with) the related position and the buyer of the corresponding Exchange contract.
Market Regulation Advisory Notice Exchange for Related Positions Rule 538
RA 1006-5: (in part) (LEGACY)
Q9: In which products are transitory EFRPs permitted?
A9: Transitory EFRPs are EFRPs in which two parties contemporaneously execute an EFRP transaction and additional cash or OTC transaction that offsets the cash or OTC component of the EFRP; such transactions are permitted exclusively in NYMEX energy and metals products, COMEX metals products, and CME foreign exchange (“FX”) products.
Pursuant to an offer of settlement in which Macquarie Bank Limited (“Macquarie”) neither admitted nor denied the rule violations upon which the penalty is based, on June 1, 2016, a Panel of the Chicago Board of Trade Business Conduct Committee (“Panel or BCC”) found that it has jurisdiction over Macquarie pursuant to Rules 400 and 402 as the conduct occurred while Macquarie was an affiliate of Macquarie Futures USA LLC, a member of the Exchange, and that on March 7, 2013, Macquarie bought an OTC put swaption contract opposite another party. Contemporaneous with the execution of the OTC put swaption, Macquarie entered into an Exchange traded Wheat calendar spread put option transaction via an Exchange of Options for Options (“EOO”) transaction opposite the same party. The execution of the EOO thereby terminated the swaption, offset the cash component of the EOO, and allowed Macquarie to establish a short futures position without market risk. The Panel concluded that the execution of the EOO and swaption transactions constituted a transitory EFRP, which is prohibited in agricultural products.
The Panel concluded that Macquarie thereby violated CBOT Rule 538.A.
In accordance with the settlement offer, the Panel ordered Macquarie to pay a fine of $25,000.
June 3, 2016