NOTICE OF DISCIPLINARY ACTION

NON-MEMBER:

STANDARD AMERICAS INC.

EXCHANGE RULES: 526. BLOCK TRADES

The Exchange shall designate the products in which block trades shall be permitted and determine the minimum quantity thresholds for such transactions. The following shall govern block trades:

F. The seller must ensure that each block trade is reported to the Exchange within five minutes of the time of execution. The report must include the contract, contract month, price, quantity of the transaction, the respective clearing members, the time of execution, and, for options, strike price, put or call and expiration month. The Exchange shall promptly publish such information separately from the reports of transactions in the regular market.

432.W. 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.

NYMEX/COMEX MARKET REGULATION ADVISORY NOTICE[1] RA 1321-4 (in relevant part):

10. Use of Nonpublic Information Regarding Block Trades

Parties involved in the solicitation or negotiation of a block trade may not disclose the details of those communications to any other party for any purpose other than to facilitate the execution of the block trade.  Parties privy to nonpublic information regarding a consummated block trade may not disclose such information to any other party prior to the public report of the block trade by the Exchange. A broker negotiating a block trade on behalf of a customer may disclose the identity of the customer to potential counterparties, including the counterparty with which the block trade is consummated, only with the permission of the customer.

Pre-hedging or anticipatory hedging of any portion of a block trade in the same product or a closely-related product based upon a solicitation to participate in a block trade is not permitted. A closely related product is a product that is highly correlated to, serves as a substitute for, or is the functional economic equivalent of the product being traded as a block. 

Counterparties to a block trade are permitted to initiate trades to hedge or offset the risk associated with the block trade following the consummation of the block trade, including during the period preceding the public report of the block trade by the Exchange. 

Except as provided above, parties privy to nonpublic information attendant to a block trade are prohibited from trading in the same product or a closely-related product for the purpose of taking advantage of such information prior to the public report of the block trade by the Exchange. This prohibition is not intended to preclude such parties from continuing to transact in the marketplace in the context of their normal business; rather, it precludes parties in possession of actionable nonpublic information regarding an imminent block trade or report of a block trade from specifically using such information to their advantage. Information regarding a block trade is considered to be nonpublic until such time that the block trade details have been disseminated to the marketplace by the Exchange or the information can otherwise be demonstrated to have become stale or obsolete.

FINDINGS:

Pursuant to an offer of settlement that Standard Americas Inc., n/k/a ICBC Standard Resources (America) Inc. (“Standard Americas” or the “Firm”), presented at a hearing on December 16, 2015, in which Standard Americas neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the COMEX Business Conduct Committee (“Panel”) found that the Firm was subject to the jurisdiction of the BCC pursuant to Exchange Rules 402 and 418 and that on several trade dates during the period October 17, 2013 through March 12, 2014, two Standard Americas traders pre-hedged block trades by trading on Globex prior to consummating the block trade with the counterparty. Specifically, after receiving the solicitation of a block trade, but, prior to consummating the block trade with the counterparty, Standard Americas entered into a separate hedge transaction on the opposite side of the market in the same product as the requested block trade.  As a result of this activity, a profit was realized in the amount of $65,320.  In addition, Standard Americas reported certain of these block trades late. 

The Panel also found that, in connection with this activity, Standard Americas failed to diligently supervise its traders in a manner sufficient to ensure that their activity was consistent with the provisions of Market Regulation Advisory Notice RA 1321-4[2], which relates to the use of nonpublic information regarding block trades.

The Panel concluded that Standard Americas violated Exchange Rules 526, 526.F. (“Block Trades”), and 432.W. (“General Offenses – Failure to Supervise”).

PENALTY:

In accordance with the settlement offer, the Panel ordered Standard Americas to pay a fine to the Exchange in the amount of $175,000 and disgorge profits in the amount of $65,320.

[1] During the relevant time period, NYMEX/COMEX Market Regulatory Advisory Notice RA 1321-4 was superseded seriatim by Market Regulation Advisory Notices RA 1322-4, 1324-4, 1325-4, 1326-4, 1327-4, and 1401-4.

[2] See n.1 above.