NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CME 13-9575-BC

MEMBER FIRM:

Rosenthal Collins Capital Markets LLC (now doing business as DV Trading LLC)

CME RULE VIOLATIONS:

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.

MRAN RA1308-5 — Wash Trades Prohibited

Q14: Are there unique considerations with respect to Rule 534 in the context of exchange-sponsored volume incentive programs?

A14: Market participants who participate in exchange-sponsored programs with incentives tied in whole or in part to meeting specific volume thresholds should take proactive steps to prevent transactions between accounts with common beneficial ownership. These trades will draw additional regulatory scrutiny and it is recommended that participants in these types of incentive programs employ functionality to mitigate the potential for such trades to occur.

Rule 432. General Offenses (in part)

It shall be an offense:

Q. to commit an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange;

…

W. for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.

FINDINGS:

Pursuant to an offer of settlement in which Rosenthal Collins Capital Markets LLC, now doing business as DV Trading LLC (“DV Trading”), neither admitted nor denied the rule violations upon which the penalty is based, on July 26, 2017, a Panel of the Chicago Mercantile Exchange (“CME”) Business Conduct Committee (“Panel”) found that in 2014 and 2015, traders employed by DV Trading entered numerous matching buy and sell orders for Eurodollar futures trades on the Globex trading platform for accounts with common beneficial ownership. DV Trading traders should reasonably have known that their placement of orders would not result in a bona fide market position exposed to market risk. Specifically, the conduct at issued involved two forms of self-match trading. First, during the period from January 2014 to April 2014, two traders employed by DV Trading rapidly created a position and then liquidated that position opposite each other at the same price. Second, during the period from June 2014 through July 2015, a single trader repeatedly entered opposing buy and sell orders for the same account with the intent and effect that the orders match. This non-bona fide trading activity allowed DV Trading—a participant in the CME Interest Rate Market Maker Program for Eurodollar Pack and Bundle Futures (“Program”)—to unjustifiably earn monthly trading-fee credits under the Program based on the number of Eurodollar futures contracts they traded. In total, DV Trading earned credits through this self-matching activity in the amount of $467,554.96. The panel further found that sufficient proactive steps were not taken to prevent transactions between accounts with common beneficial ownership. The Panel concluded that this activity violated CME Rules 534, 432.Q., and 432.W.

PENALTY:

In accordance with the settlement offer, the Panel ordered DV Trading to pay a fine of $250,000 and disgorgement in the amount of $467,554.96.

EFFECTIVE DATE:

July 28, 2017