NOTICE OF DISCIPLINARY ACTION

FILE NO.:

NYMEX 10-7443-BC

MEMBER:

ALAN KLEINSTEIN

NYMEX RULE VIOLATIONS: NYMEX LEGACY RULE 6.05 TRANSACTIONS, BIDS, AND OFFERS ON
THE TRADING FLOOR

(A) Except as otherwise specifically provided in the Bylaws and Rules, all purchases, sales, bids and offers for futures and options contracts:
(1) shall be executed openly and competitively by open outcry in the appropriate trading ring during the authorized hours of trading

NYMEX LEGACY RULE 6.41 TRADING STANDARDS FOR FLOOR BROKERS

(E) No Floor Member on the Floor having an order from another person may take the opposite side of the transaction for himself, directly or indirectly, or for an account of: i) any firm, corporation or other entity of which he is a partner, officer, employee or otherwise a member of a broker association; or ii) any partner, officer, employee or broker association member of an entity listed in subparagraph (i) of this Rule, nor may he execute a trade on behalf of himself of a customer opposite any broker with whom he is affiliated.

NYMEX LEGACY RULE 6.61 PRE-ARRANGED TRADES

Pre-arranged trades are prohibited.

NYMEX LEGACY RULE 8.55 – CLASSIFICATION OF OFFENSES

(A) Major Offenses
No Member, Member Firm, or any employee of the foregoing shall commit a violation of any of the following rules, which shall be deemed major offenses of the Exchange.
(2) to be guilty of fraud or any act of bad faith;
(3) to be guilty of any dishonest conduct;
(18) to commit an act which is substantially detrimental to the interests or welfare of the Exchange; and
(23) Supervision.
(a) To fail to supervise any employee of a Member or Member Firm adequately to prevent the violation by such employee of any Exchange Rule that: (i) results in substantial detriment to the welfare and interests of the Exchange; (ii) results in harm to a customer or another Member or Member Firm; or (iii) otherwise constitutes a Major Offense.

NYMEX LEGACY RULE 11G.18 TRADING STANDARDS FOR ELECTRONIC TRADING SYSTEMS

(F) A Globex User shall not make any purchase or sale, or shall not enter an order through Globex, to effect a trade that has been prearranged. The foregoing restriction shall not apply to transactions executed pursuant to permissible Pre-Execution Discussions in accordance with the provisions of Rule 11G.19.

FINDINGS:

Pursuant to an offer of settlement Alan Kleinstein (“Kleinstein”) presented at a hearing on June 12, 2014, in which Kleinstein neither admitted nor denied the findings or rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“BCC”) found that at the time of the conduct, Kleinstein was a NYMEX member and thus subject to the jurisdiction of NYMEX, and that on 22 occasions in February 2008 and March 2008 as a broker on the floor of the Exchange, Kleinstein facilitated his customer’s manipulation of the settlement prices in Platinum and Palladium spot month contracts by executing his customer’s orders as directed by his customer which resulted in artificially high fill prices during the two minute close. The Panel also found that Kleinstein failed to supervise his floor clerk who assisted in the manipulation of these settlement prices by his customer. Furthermore, the Panel found that Kleinstein participated in 19 non-competitive pre-arranged trades, 14 of which as the executing broker of a customer order during which he indirectly took the opposite side of that order by buying and selling opposite the same trader. This conduct occurred both on Globex and in the Platinum and Palladium ring. As a result of this conduct, Kleinstein realized a profit of $54,770.

The Panel found that as a result, Kleinstein violated Legacy NYMEX Rules 6.05(A)(1) (Transactions, Bids and Offers on the Trading Floor), Legacy NYMEX Rules 6.41 (Trading Standards for Floor Brokers), 6.61 (Pre-Arranged Trades), 8.55(A)(2) (Fraud or Bad Faith), 8.55(A)(3) (Dishonest Conduct), 8.55(A)(18) (Acts Detrimental to the Interests and Welfare of the Exchange), 8.55(A)(23)(Supervision), and Legacy NYMEX Rule 11G.18 (Trading Standards for Electronic Trading Systems).

PENALTY:

In accordance with the settlement offer, the Panel ordered Kleinstein to pay a fine of $70,000 and disgorge profits in the amount of $54,770. The Panel also ordered Kleinstein to serve a 10 year bar from: (i) applying for membership at any exchange owned, controlled, or operated by CME Group Inc., and (ii) directly or indirectly accessing, placing orders, or executing trades on any trading or clearing platform owned, controlled, or operated by CME Group Inc., including, but not limited to, the CME Globex electronic trading platform. The suspension shall run from June 16, 2014, through June 16, 2024, inclusive.

EFFECTIVE DATE:

June 16, 2014