The Linn Group Inc.
CME RULE VIOLATIONS:
Rule 432. General Offenses (in part)
It shall be an offense:
W. for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange;
Rule 534. Wash Trades Prohibited (in part)
No person shall place or accept buy and sell orders in the same product and expiration month . . . 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 should 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.
(Legacy) Rule 807. Open Long Positions During Delivery Month
At such times and in such manner as shall be prescribed by the Manual, clearing members shall submit a complete and accurate record of dates of all open purchases for use in making deliveries. Clearing members shall be fully responsible for inventories submitted to the Clearing House. Unless otherwise provided in the Manual, beginning on the day following the first day on which longs may be assigned delivery, all purchases and sales, made in one day in the lead month contract by a person holding a long position in that contract, must first be netted out as day trades with only the excess buys considered new longs or the excess sales being offsets of the long position.
Pursuant to an offer of settlement in which The Linn Group Inc. (“Linn Group”) neither admitted nor denied the rule violations upon which the penalty is based, on June 21, 2016, a Panel of the Chicago Mercantile Exchange Business Conduct Committee (“Panel”) found that the Linn Group voluntarily submitted itself to the jurisdiction of the BCC for purposes of settling this matter. The Panel also found that on two dates in August 2012, after First Notice Day, the Linn Group, a futures commission merchant acting on behalf of a customer, placed orders with a CME member floor broker to buy and sell 250 expiring Live Cattle futures contracts for the same customer account. The purpose of the orders was to freshen long futures position dates and delay delivery. The Linn Group knew or reasonably should have known that the purpose of such offsetting orders was to avoid taking a bona fide market position exposed to market risk. In addition, the day after each of these transactions, a Linn Group employee manually overrode the default settings of the Linn Group’s back-office processing system to provide new trade dates for the contracts instead of netting them out as day trades as was then required after First Notice Day, thereby freshening the positions. Finally, the Panel found that the Linn Group failed to both diligently supervise its employees in connection with these transactions and adequately educate its employees with respect to the applicable rules. The Panel concluded that as a result of the foregoing, the Linn Group thereby violated CME Rules 432.W, 534 and Legacy Rule 807.
In accordance with the settlement offer, the Panel ordered the Linn Group to pay a fine of $70,000.
June 23, 2016