INTL FC STONE MARKETS LLC
LEGACY EXCHANGE RULE 538. EXCHANGE FOR RELATED POSITIONS
The following transactions shall be permitted by arrangement between parties in accordance with the requirements of this rule: Exchange for Physical (“EFP”) – A privately negotiated and simultaneous exchange of an Exchange futures position for a corresponding cash position. Exchange for Risk (“EFR”) – A privately negotiated and simultaneous exchange of an Exchange futures position for a corresponding OTC swap or other OTC instrument. Exchange of Options for Options (“EOO”) – A privately negotiated and simultaneous exchange of an Exchange option position for a corresponding OTC option position or other OTC instrument with similar characteristics. For purposes of this rule, an EFP, EFR or EOO shall be referred to as an Exchange for Related Position (“EFRP”).
LEGACY RULE 538.A. NATURE OF AN EFRP (IN PART)
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.
LEGACY RULE 538.H. DOCUMENTATION
Parties to any EFRP transaction must maintain all documents relevant to the Exchange contract and the cash, OTC swap, OTC option, or other OTC derivatives, including all documents customarily generated in accordance with relevant market practices and any documents reflecting payment and transfer of title. Any such documents must be provided to the Exchange upon request, and it shall be the responsibility of the carrying clearing member firm to provide such requested documentation on a timely basis.
Pursuant to an offer of settlement that INTL FC Stone Markets LLC (“FC Stone Markets”) presented at a hearing on July 16, 2015, in which FC Stone Markets neither admitted nor denied the factual allegations or rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found that it had jurisdiction over FC Stone Markets pursuant to Exchange Rules 400 and 402 as the conduct occurred while FC Stone Markets was a NYMEX member, and that on March 26, 2014, FC Stone Markets entered into an EFRP transaction, which failed to consist of two discrete but related simultaneous transactions, and which also did not contain sufficient documentation of the related OTC transaction and was therefore not a bona fide EFRP transaction.
The Panel concluded that FC Stone Markets violated Legacy Exchange Rules 538.A. (“Exchange for Related Positions – Nature of an EFRP”) and 538.H. (“Exchange for Related Positions - Documentation”).
In accordance with the settlement offer, the Panel ordered FC Stone Markets to pay a fine to the Exchange in the amount of $20,000.