NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CBOT 16-0365-BC

MEMBER:

Brian Horvath

CBOT RULE VIOLATION:

Rule 575. Disruptive Practices Prohibited

D. No person shall enter or cause to be entered an actionable or non-actionable message with intent to disrupt, or with reckless disregard for the adverse impact on, the orderly conduct of trading or the fair execution of transactions.

Market Regulation Advisory Notice Disruptive Practices Prohibited Rule 575 RA1516-5 (in part)

Q22: Is the creation or execution of User Defined Spreads (“UDS”) for the
purposes of deceiving or disadvantaging other market participants a violation of
Rule 575?

A22: Yes. Although the CME Globex system provides certain protections such as
reasonability checks with respect to option deltas and the futures price on
covered instruments, the UDS functionality requires users to exercise diligence
and care in the creation of option spread instruments, including the creation of
covered option strategies.

Market participants are reminded that knowingly creating and/or trading UDS instruments in a manner intended to deceive or unfairly disadvantage other market participants is considered a violation of Rule 575.

FINDINGS:

Pursuant to an offer of settlement in which Brian Horvath (“Horvath”) neither admitted nor denied the rule violation upon which the penalty is based, on August 15, 2018, a Panel of the CBOT Business Conduct Committee (“BCC”) found that between November 6, 2015, and November 10, 2015, Horvath executed multiple covered User Defined Spread (“UDS”) transactions related to January 2016 and March 2016 Soybean contracts on the Globex electronic trading platform for the purpose of avoiding the allocation of futures contracts that should have been associated with the covered options instrument. As a result of covering his futures shortfall in the associated outright futures market at more advantageous prices than the futures leg prices of the UDS strategies, Horvath realized a profit of $13,275. The Panel concluded that this activity violated CBOT Rule 575.D.

PENALTY:

In accordance with the settlement offer, the Panel ordered Horvath to pay a fine in the amount of $15,000 and disgorge profits in the amount of $13,275.

EFFECTIVE DATE:

August 17, 2018