If you or your company trades on CME, CBOT, NYMEX or COMEX (CME Group exchanges, collectively referred to herein as “CME”), you will need to take note of CME's new Market Regulation Advisory Notice (MRAN), which became effective on 16 July. The new MRAN is called “Supervisory Responsibilities for Employees and Agents” and should be reviewed closely to understand CME's expectations related to diligent supervision, including policies, trainings, monitoring, remediation and sanctions.

The duty to supervise has long applied to trading on CFTC-registered exchanges, regardless of whether the traders are members of the exchange or whether they are CFTC registrants subject to CFTC Regulation 166.3. CME Rule 418 makes clear that CME rules, including its supervision rule, apply to “any person initiating or executing a transaction on or subject to the rules of the exchange directly or through an intermediary, and any person for whose benefit such a transaction has been initiated or executed.”  (emphasis added). In other words, if you trade on CME Group exchange, the supervision rule applies to you.

The new MRAN lists 19 examples of the sort of disciplinary actions CME has brought over the years, including the failure to diligently, adequately, effectively or sufficiently (i) provide compliance training on exchange-specific rules to traders, (ii) monitor employees' market activity, and (iii) enforce internal policies. CME considers automated trading systems (ATSs), both fully- and semi-automated, to be “employees or agents” whose behavior must be supervised. 

The bottom line is that CME expects all parties under its jurisdiction, at a minimum, to take reasonable measures to:

  • Prevent rule violations from occurring, including through training traders and their supervisors;
  • Detect violative conduct should it occur; and
  • Correct and address instances of noncompliance, including through internal disciplinary action.

We urge all firms and traders that place orders or execute trades on CME Group exchanges to review the new MRAN and consider its impact on your compliance program. The firm has handled CME and ICE Futures investigations and disciplinary actions, and has tracked exchange disciplinary actions for many years. We have practical insights into the exchanges' compliance and supervision expectations, and can help you meet those expectations

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mr Clifford C. Histed
K&L Gates
70 West Madison Street, Suite 2800
Chicago
IL 60602-4207
UNITED STATES
Tel: 212536 3900
Fax: 212536 3901
E-mail: Sarah.Lamb@klgates.com
URL: www.klgates.com

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