NOTICE OF DISCIPLINARY ACTION

NON-MEMBER:

Powerline Petroleum, LLC

NYMEX RULE VIOLATIONS:

RULE 526. BLOCK TRADES (In Part)

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. Unless otherwise agreed to by the principal counterparties to the block trade, the seller, or, in the case of a brokered transaction, the broker handling the block trade, must ensure that each block trade is reported to the Exchange within the time period and in the manner specified by the Exchange. 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.

NYMEX Market Regulation Advisory Notice RA1806-5, Section 7 Block Trade Submission Requirements to CME Clearing (In Part)

The execution time is the is the time at which the trade is consummated… Please note the execution time of a block trade is the time that the parties agree to the trade. Market participants must accurately report the execution time of the block trade.

NYMEX Market Regulation Advisory Notice RA1806-5, Section 11 Use of Nonpublic Information Regarding Block Trades (In Part)

Parties to a potential block trade may engage in pre-hedging or anticipatory hedging of the position that they believe in good faith will result from the consummation of the block trade, except for an intermediary that takes the opposite side of its own customer order. In such instances, prior to the consummation of the block trade, the intermediary is prohibited from offsetting the position established by the block trade in any account which is owned or controlled, or in which an ownership interest is held, or for the proprietary account of the employer of such intermediary. The intermediary may enter into transactions to offset the position only after the block has been consummated.

Rule 536.E. Negotiated Trades

At the time of execution, every order received from a customer for execution pursuant to Rule 526 (“Block trades”) and Rule 538 (“Exchange for Related Positions”) must be in the form of a written or electronic record and include an electronic timestamp reflecting the date and time such order was received, and must identify the specific account(s) for which the order was placed. Such record shall also include an electronic timestamp reflecting the date and time such order was modified, returned, confirmed cancelled.

Rule 432 General Offenses (in part)

It shall be an offense:

I. To make a verbal or written material misstatement to the Board, a committee, or Exchange employees.

FINDINGS:

Pursuant to an offer of settlement in which Powerline Petroleum, LLC neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on July 6, 2022, a Panel of the New York Mercantile Exchange Business Conduct Committee (“Panel”) found that on multiple occasions between July 1, 2018, and September 30, 2019, Powerline misled its customers regarding its capacity as an intermediary taking the opposite side of the customers’ block trades and pre-hedged block trades in various Energy futures and options on futures markets. Powerline entered into separate transactions with third parties prior to consummating block trades with its customers and after having received nonpublic information attendant to the customers’ requested block trades. Additionally, while it held itself out as a broker, Powerline failed to inform its customers that Powerline would act as an intermediary and take the opposite side of the customers’ orders.

Specifically, in each instance Powerline solicited a customer for various block-trade strategies. Once the customer agreed to a strategy, Powerline contacted a broker to obtain a market for the strategy for its own benefit. In doing so, Powerline acted on nonpublic information to obtain a better price from the broker than Powerline solicited from its customer. Once the broker found a counterparty to take the opposite side of Powerline’s trade and after this trade was consummated, Powerline returned to its customer and unwound its position opposite its customer near the originally quoted price. The Panel found that by executing pre-hedged trades for its own account prior to trading opposite its customers’ original orders in this manner, Powerline generated profits.

The Panel also found Powerline made material misstatements to Exchange employees when it provided Market Regulation Department staff with copies of letters purportedly dated in January 2019, and that stated its customers agreed to trade principally opposite Powerline. In addition to the language being insufficient to notify its customers that Powerline would trade opposite its customers in a principal capacity, Powerline altered the dates on the letters from dates in September 2019—the dates the letters were actually sent—to dates in January 2019, prior to providing these letters to Exchange staff.

Further, Powerline submitted multiple block trades in various Energy futures and options on futures markets to the Exchange with inaccurate execution times, failed to report block trades to the Exchange within the required time period following execution, and failed to keep proper records related to the execution time of the trades it brokered.

The Panel concluded that as a result of the foregoing, Powerline violated NYMEX Rules 526, 526.F., 536.E., and 432.I.

PENALTY:

In accordance with the settlement offer, the Panel ordered Powerline to pay a fine in the amount of $225,000 and to disgorge profits as detailed in the CFTC Order in its related matter.