NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CME 14-9944-BC

NON-MEMBER:

Chenwei Zhu

CME RULE VIOLATIONS:

CME Rule 432.G. General Offenses (in part)

It shall be an offense to prearrange the execution of transactions in Exchange
products for the purpose of transferring equity between accounts.

FINDINGS:

Following an evidentiary hearing on the merits on October 16, 2016, a panel of the Chicago Mercantile Exchange Business Conduct Committee (“Panel”) issued a written decision finding that between May 2014 and July 2014, Chenwei Zhu (“Zhu”), a non-member, prearranged the execution of 13 round-turn transactions with Trader A, resulting in 41 trades with a total of 56 contracts in various illiquid FX option instruments for the purpose of transferring $19,527.50 from accounts controlled by Trader A to two of Zhu’s accounts.

Additionally, the Panel found that during the three-month period at issue, the trades between Zhu and Trader A were executed in illiquid back month FX contracts. The orders were placed opposite each other for the same price and in most instances for the same quantity. Out of the 188 orders placed by Trader A, the Globex match engine rejected 145 because they fell outside of the Exchange’s existing price band, resulting in a 2179 error code. The 2179 error code was sent only to Trader A and would not have been known to any other market participant, including Zhu. The Panel further found that moments after Trader A received the error code, Zhu modified his existing orders to either increase or decrease his order price or cancelled his order and re-entered a new order within the price band limits. Based on these facts, the Panel determined that the trading was prearranged for the purpose of transferring equity between the accounts.

On September 15, 2017, the appellate panel of the board issued a decision affirming the decision of the BCC Panel.

PENALTY:

Based on the record and the Panel’s findings and conclusions, the Panel ordered Zhu to (1) pay a fine in the amount of $25,000; (2) disgorge profits in the amount of $19,527.50; and (3) serve a 35 business day suspension from trading for his personal account, either directly or indirectly on all trading and clearing platforms owned or controlled by CME Group Inc. The suspension shall run from October 10, 2017, through November 27, 2017, inclusively.

EFFECTIVE DATE:

October 10, 2017