Michael W. Brooks

The Commodity Futures Trading Commission (“CFTC” or “Commission”) Division of Enforcement (“Division”) today issued “Civil Monetary Penalty Guidance” regarding factors staff will consider when recommending civil monetary penalties to the Commission.  The guidance tracks with prior guidance and current practices but...

As many workplaces shutter and transition to telecommuting in response to the Novel Coronavirus (COVID-19), we are reminded that change always brings with it compliance risk. Even if your company has an emergency plan in place, assessing its effectiveness early and making adjustments as needed can avoid lapses in compliance...

For those interested in the contours of the Commodity Futures Trading Commission’s (CFTC) and the Federal Energy Regulatory Commission’s (FERC) anti-manipulation authority, three October 2019 decisions...

Following the August 15 2019 public announcement of a settlement between the Commodity Futures Trading Commission (CFTC) and Kraft Foods Group, Inc./Mondelez Global, LLC (together “Kraft”), the parties appeared on August 19 before the Honorable John Robert Blakey...

Today the legal battle between the Commodity Futures Trading Commission (CFTC) and Kraft Foods Group, Inc. (Kraft) over whether Kraft manipulated the wheat market in 2011 officially ended with the entering of a Consent Order in the U.S. District Court...

A three-judge panel for the U.S. Court of Appeals for the Ninth Circuit recently issued a decision that revives claims by the Commodity Futures Trading Commission (CFTC) that Monex Deposit Company and two affiliates (Monex) violated the Commodity Exchange Act (CEA)...

In case you missed it, on April 30, 2019, the Department of Justice (DOJ) Criminal Division released a guidance document titled Evaluation of Corporate Compliance Programs (Guide). This release serves as an update to a prior version released in 2017 by the Fraud Section of the Criminal Division. As such, the revised...

On Friday May 3, 2019, the Federal Energy Regulatory Commission (FERC) approved a settlement between FERC’s Office of Enforcement and Virginia Electric Power Company (Dominion) to resolve...

As the world contemplates the future of cryptocurrencies and smart contracts – including whether and how to invest in them, to transact using them, and to regulate them – it will be important to recognize the significant implications of two core principles of most cryptocurrencies...

On November 30, 2018, a federal court rejected the Commodity Futures Trading Commission’s (“CFTC”) allegations of market manipulation in CFTC v. Wilson (“DRW”) and found in favor of the defendants, Donald R. Wilson (“Wilson”) and his company...

The Federal Energy Regulatory Commission (FERC) and the Commodity Futures Trading Commission (CFTC) each issued their annual enforcement reports last week. As always, these reports...

The Commodity Futures Trading Commission (CFTC) yesterday announced a settlement with Lansing Trading Group, LLC that resolves allegations of attempted market manipulation and, separately, aiding and abetting...

Pursuant to a settlement offer, a Business Conduct Committee (BCC) Panel found that on October 16, 2015, an automated trading system (ATS) deployed by a member entity sold the February 2016 Eurodollar futures contract, which led to a 74-tick price movement...

The Internet recently erupted with news reports and law firm legal alerts broadcasting the endorsement by a federal court of the Commodity Futures Trading Commission’s (CFTC) position that virtual currencies (a/k/a cryptocurrencies) are commodities subject to...

On April 10, 2018, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) approved a stipulation and consent agreement (the “Settlement Agreement”) between FERC’s Office of Enforcement (“Enforcement”) and ETRACOM LLC and Michael...

On March 30, 2018, the U.S. District Court for the Southern District of Ohio issued an opinion granting in part and denying in part motions to dismiss the Federal Energy Regulatory Commission’s (“FERC”) action seeking to enforce its assessment of civil penalties against Coaltrain...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

On February 15, 2018, the Federal Energy Regulatory Commission (“FERC”) revised its regulations to require all newly interconnecting generation facilities to install, maintain, and operate equipment capable of providing primary frequency response as a condition of interconnection...

On February 15, 2018, the Federal Energy Regulatory Commission (“FERC”) adopted a final rule (“Order No. 841”) [1] that facilitates the direct participation of electric storage resources in centralized markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”)...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

On November 22, 2017, the Commodity Futures Trading Commission (“CFTC”) released its annual enforcement report for fiscal year 2017. As in previous years, this year’s report highlights the agency’s continued commitment to enforcement and aggressive pursuit of those viewed as engaging in conduct that undermines the integrity of...

FERC Annual Enforcement Update On November 16, 2017, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) released the Office of Enforcement’s (“OE”) annual report on enforcement activities (“ Annual Report ”) for fiscal year...

After more than four years of litigation in federal district court, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) yesterday issued an order approving a $105 million settlement...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular focus on notices potentially relevant to energy commodities and...

On Friday, the U.S. District Court for the Eastern District of California handed the Federal Energy Regulatory Commission (“FERC” or “Commission”) a significant defeat by concluding that FERC’s...

On September 25, 2017, James McDonald, Director of the Division of Enforcement (“Division”) at the Commodity Futures Trading Commission (“CFTC” or “Commission”) gave a speech at New York University in which he discussed the mission of the Division of...

The Bracewell U.S. Futures Exchanges Disciplinary Actions Report is a monthly report that provides summaries of certain disciplinary notices by U.S. exchanges during the prior month. The report has a particular...

Yesterday, the Federal Energy Regulatory Commission (FERC) issued an order approving a settlement agreement between FERC’s Office of Enforcement and City Power Marketing, LLC, and its owner, K. Stephen Tsingas (together, City Power). The order resolves...

NYMEX NYMEX 15-0305-BC Position Limits Violation of Rule 562 – Position Limit Violations On August 9, 2016, a Probable Cause Committee (“PCC”) panel charged a non-member entity with violating NYMEX Rule 562, based on allegations that on November 23, 2015...

On July 26, 2017, the U.S. Commodity Futures Trading Commission (“CFTC”) issued an order approving a settlement resolving allegations that Simon Posen of New York violated the CFTC’s prohibition on spoofing by entering bids or offers with “the intent to cancel the bid...

NYMEX NYMEX 16-0498-BC Position Limit Violation of Rule 562 – Position Limit Violations Pursuant to a settlement offer, a Business Conduct Committee panel (“BCC Panel”) found that on July 27, 2016...

On Thursday, June 29, 2017, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) held a technical conference on the liquidity and transparency of natural gas price indices. The conference consisted of three discussion panels...

NYMEX NYMEX 16-0372-BC Misc. Violation of Rule 432.Q, 432.W – General Offenses Pursuant to a settlement offer, a panel found that from July 2015 through March 2016, a non-member trader was...

The United States Supreme Court this week unanimously held that the five-year statute of limitations established in 28 U.S.C. §2462 applies to disgorgement in Securities and Exchange Commission (SEC) enforcement proceedings. The Court in Charles Kokesh v. Securities...

The United States Supreme Court this week unanimously held that the five-year statute of limitations established in 28 U.S.C. §2462 applies to disgorgement in Securities and Exchange Commission (SEC) enforcement proceedings. The Court in Charles Kokesh v. Securities and Exchange Commission concluded that the SEC’s use of disgorgement amounts to a penalty and thus is subject to the five year statute of limitations. [1] The decision in Kokesh represents a further practical limitation on the SEC’s remedial power and could have implications for other agency actions, including the Federal Energy...

For the first time since we began the monthly Disciplinary Actions Report there were no disciplinary notices on the exchanges we monitor. Of course, there continue to be pending, non-public matters and more notices to come.

NYMEX NYMEX 15-0200-BC-6 EFRP Violation of Rules 538 – Exchange for Related Positions and 538.C – Related Position. A non-member entity was found to have entered into an EFRP transaction on December 1, 2014 that was in violation of Exchange Rule 538.C...

On March 30, 2017, the U.S. District Court for the Eastern District of California issued an order denying, without prejudice, the Federal Energy Regulatory Commission’s (“FERC” or the “Commission”)...

NYMEX NYMEX 16-0600 Misc . Rules 413 – Summary Access Denial Actions (in part) and 413.A – Authority to Deny Access. On January 5, 2017, CME Group’s Market Regulation Department summarily denied a member’s direct and indirect access to the CME Globex electronic...

On March 8, 2017, the U.S. District Court for the Eastern District of California issued an order affirming that ETRACOM LLC and its owner (the “Respondents”) are entitled to a full trial on the merits...

NYMEX NYMEX 15-0087-BC-7 Misc. Violation of Rule 432 – General Offenses (in part) In August a non-member firm was alleged to have failed to respond to Exchange staff requests for information related to an investigation. Accordingly, the Business Conduct Committee...

NYMEX NYMEX 16-0530-BC Position Limits Violation of Rule 562 – Position Limit Violations. At the close of business on a single day in September 2016, a member firm held a short position which was 38.4% over the standard expiration month limit for October 2016 Henry Hub Natural Gas Futures contracts. Pursuant to a settlement offer, the member firm neither admitted nor denied the violation. $40,000 penalty. ICE 2015-114 Block Trades; Misc. Violation of Exchange Rule 4.01 - Duty to Supervise; Rule 4.02(c) – Trade Practice Violations; Rule 4.02(d) – Trade Practice Violations; Rule 4.04 – Conduct...

COMEX COMEX 14-0050-BC Disruptive Trading Violation of Rule 575.A and Rule 575.D – Disruptive Practices Prohibited. Between November 2014 and March 2015, a member trader, with no intent to trade, entered or layered orders in futures contracts in order to motivate other market participants to trade opposite the member’s smaller resting orders, which the member would cancel within moments after receiving a fill on those smaller orders. During this same period, the member created alternating buy-side and sell-side market imbalances by entering orders on one side of the market and smaller orders...

The Federal Energy Regulatory Commission (“FERC”) and the U.S. Commodity Futures Trading Commission (“CFTC”) recently released their annual reports on enforcement activities for fiscal year 2016 (October 2015 through September 2016). In addition, FERC enforcement staff released two white papers regarding the bounds of FERC’s prohibition on market manipulation and the features of an effective compliance program: (1) FERC Staff White Paper on Anti-Market Manipulation Enforcement Efforts Ten Years after EPAct 2005 (the “Anti-Manipulation White Paper”); and (2) FERC Staff White Paper on Effective...

NYMEX NYMEX 13-9490-BC-1 COMEX 13-9490-BC-1 Disruptive Trading Violation of Rule 432– General Offenses (in part); Rule 433 – Strict Liability for the Acts of Agents. Between March and July 2013, two traders, acting on behalf of a member firm, engaged in patterned activity in which they entered into “larger-sized” orders and then cancelled them seconds after the execution of smaller orders on the opposite side of the book in order to encourage other market participants to trade with the smaller-sized orders. Pursuant to a settlement offer, the member firm neither admitted nor denied the...

NYMEX NYMEX 16-0355-BC EFRP Violation of Rule 432.X – General Offenses. In June 2015 a member company executed two EFRP transactions on two dates with the intent that they be block trades. Because there were no corresponding related positions, the EFRP transactions were non-bona fide. Pursuant to a settlement offer, the member neither admitted nor denied the violation. $15,000 penalty. NYMEX 16-0374-BC EFRP Violation of Rule 432.X – General Offenses. On a single day in July 2015 a non-member company executed one EFRP transaction that, because there was no corresponding related position, was...

On September 30, 2016, the United States District Court for the Southern District of New York issued an order in CFTC vs Wilson, et. al , 13 Civ. 7884 (NYSD), denying motions for summary judgment in an action by the Commodity Futures Trading Commission (“CFTC”) concerning alleged violations of the prohibition on market manipulation contained in Sections 6(c) and 9(a)(2) of the Commodity Exchange Act (“CEA”). In its order, the Court clarified the burden of proof that the CFTC faces when making a price-based manipulation claim under these sections, including that acting with the intent to...

ICE 2015-051 Block Trades Violation of Rule 6.08(b)(i) - Order Ticket Requirements, Rule 4.07(c) - Block Trading, and Rule 4.01 - Duty to Supervise. On multiple occasions, an entity allegedly failed to comply with the recordkeeping requirements when handling customer orders, misreported the correct execution time of block trades as well as submitted a block trade beyond the 15-minute reporting period, and failed to adequately supervise its brokers’ block trade activity. $15,000 fine and cease and desist. CME CME 13-9366-BC Misc. Violation of Rule 432.X. - General Offenses (in part); Rule 532...

ICE 2014-033 & 2015-085 Disruptive Trading; Spoofing Violation of Rule 4.02(e)(i), 4.02(e)(iv) [Current Rule 4.02(l)(2)], Rule 4.02(h) [Current Rule 4.02(l)(1)(C), and 4.02(k)(2)(C) – Trade Practice Violations and Rule 4.01 – Duty to Supervise. On January 23, 2014, a trader allegedly engaged in a pattern of trading activity where he created order book imbalances in the Cotton No. 2 futures market (“CT”) by entering multiple 500-lot March 2014 (“H14) CT orders at different price levels at the same time he was entering smaller orders on the opposite side of the H14 CT market, creating...

On July 21, 2016, the U.S. District Court for the District of Massachusetts issued an order finding that Maxim Power Corp. and several affiliates and an employee (collectively, the “Maxim Respondents”) were entitled to a full trial on the merits and discovery rights. The ruling came in an action by the Federal Energy Regulatory Commission (“FERC”) seeking an order affirming FERC’s assessment of significant civil penalties against Maxim for alleged violations of the Federal Power Act’s (“FPA”) prohibition on market manipulation and related FERC rules. The court’s order is significant both for...

ICE 2015-058 Misc. Violation of Rule 6.15(a)- Reportable Positions and Daily Reports and Rule 4.01- Duty to Supervise. An entity allegedly failed, on multiple occasions from January 2015–April 2015 and September 2015–October 2015, to report large trader positions. The entity did not have an adequate process or procedure in place to discover these reporting errors. $20,000 penalty and cease and desist. 2015-014 Block Trade; Misc. Violation of Rule 6.08(b)(i)- Order Ticket Requirements, Rule 4.07- Block Trading, Rule 21.04- Power to Compel Testimony and Production of Documents, and Rule 4.01-...

On June 27, 2016, a federal judge denied Kraft Foods Group Inc.’s (“Kraft”) motion to dismiss a proposed class action against the company for allegedly manipulating the wheat futures market. [1] Harry Ploss, on behalf of himself and a proposed class (“Plaintiffs”), alleged that Kraft manipulated the wheat futures market with the intent to influence prices by engaging in two primary schemes: 1) the “long wheat futures scheme,” whereby Kraft allegedly maintained an “enormous” long position in wheat futures, never intended to be used to meet its commercial needs, with the improper intent to push...

The Commodity Futures Trading Commission’s (“CFTC”) is seeking comments regarding an amendment (Submission No. 16-67) ICE Futures U.S. (“ICE”) has proposed to its Block Trade Frequently Asked Questions (“Block Trade FAQ”) to clarify “the extent to which parties may engage in pre-hedging or anticipatory hedging related to the consummation of a block trade.” Specifically, the amendment clarifies that, as a general matter, “Parties to a 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...

NYMEX NYMEX 15-0150-BC-3 and NYMEX 15-0150-BC-4 EFRP Violation of Rule 538.C – Exchange for Related Positions – Related Position. On August 15, 2014, September 5, 2014 and September 24, 2014, a non-member entity allegedly executed three non-bona fide Exchange for Related Position (“EFRP”) transactions in various energy products. In addition, on August 4, 2014, a second non-member entity allegedly entered into a non-bona fide EFRP transaction on behalf of two managed customer accounts. Both entities failed to evidence an associated related position for the EFRP transactions, thus rendering the...

On May 10, 2016, the Commodity Futures Trading Commission (“CFTC” or “Commission”) issued a proposed amendment (“May 10 Proposed Amendment”) [1] to a final order issued on March 28, 2013 (the “RTO-ISO Order”) that exempted certain specified transactions of six Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) from certain provisions of the Commodity Exchange Act (“CEA”) and other CFTC regulations. [2] The May 10 Proposed Amendment would modify the RTO-ISO Order to state that the exemption provided therein does not prohibit private causes of action pursuant...

ICE FUTURES U.S. 2015-025 Spoofing Violation of Rule 4.02(I) – Trade Practice Violations. Allegedly, an individual engaged in a pattern of trading activity in the Coffee “C” (“KC”) Futures market between March 2015 and May 2015 where numerous order book imbalances were created wherein he entered a small order relative to market conditions to buy or sell at the best price on one side and a large order to sell or buy on the opposite side of the market. Once the small order transacted, often the individual would cancel the larger order on the other side of the market. The individual engaged in...

On May 6, 2016, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) issued an order denying ETRACOM LLC (“ETRACOM”) and Michael Rosenberg’s Motion to Require Disclosure of Certain Materials and Information or, in the Alternative, for Issuance of Subpoena. The motion sought certain data from the California Independent System Operator Corp. (“CAISO”) to support ETRACOM’s defense that CAISO “market flaws” are at the bottom of the matter, not market manipulation as alleged by FERC staff. The Commission denied the motion on three grounds: (1) the data is unnecessary; (2) the...

On May 6, 2016, the Office of Enforcement of the Federal Energy Regulatory Commission (“FERC”) issued a Staff Notice of Alleged Violations (“NAV”), disclosing a nonpublic investigation in which...

On April 28, 2016, the Federal Energy Regulatory Commission (“FERC”) issued an order [1] directing Total Gas & Power North America, Inc. (“TGPNA”) and two natural gas traders (together the “Respondents”) to show cause why they should not be found to have violated the Natural Gas Act’s (“NGA”) prohibition on market manipulation by engaging in a scheme to manipulate natural gas prices in the southwest United States to benefit related financial positions between June 2009 and June 2012. FERC is proposing civil penalties of $213.6 million against TGPNA and $1 million and $2 million against...

On April 11, 2016, the United States District Court for the District of Massachusetts issued a procedural order denying motions to dismiss actions initiated by the Federal Energy Regulatory Commission (“FERC”) seeking affirmance of two orders assessing civil penalties against Lincoln Paper and Tissue, LLC, Richard Silkman (“Silkman”), and Competitive Energy Services (“CES”) (collectively, the “Respondents”) for violating Section 222 of the Federal Power Act (“FPA”) and FERC’s Anti-Manipulation Rule. In the underlying orders, FERC found that the Respondents had engaged in market manipulation...

ICE FUTURES ICE 2014-072 Position Limits; Misc. Violation of Rule 4.04: Conduct Detrimental to the Exchange; and Rule 6.19: Position Limits for Cotton No. 2 Contracts. Allegedly, an entity may have violated Exchange Rule 4.04 when, after Exchange Staff had encouraged the entity to reduce its sizeable position in the July 2014 Cotton No. 2 (“N14 CT”) Futures Contract in a manner consistent with an orderly liquidation for the purpose of complying with the 300 lot position limit in effect at the close of business on the day prior to First Notice Day for the N14 CT Contract, the entity waited...

Effective March 18, 2016 and April 4, 2016 [1] respectively, the major U.S. futures exchanges, ICE Futures U.S., Inc. (“ICE”) and the CME Group exchanges (“CME Group”), [2] have amended their rules regarding aggregation of positions for purposes of determining compliance with applicable position limits and accountability levels. ICE amended Rule 6.12—Aggregation of Positions [3] and CME Group has amended Rule 559.E—Limited Exceptions to Aggregation for Independently Controlled Accounts. [4] As a result of the amendments, aggregation standards will be more straightforward and will better track...

Disciplinary Actions ICE FUTURES ICE 2012-038 Block Trades Violation of Rule 4.07(c) - Block Trading. Allegedly, an entity violated ICE Futures U.S. ("IFUS") Rule 4.07(c) by failing to report a 180 lot block trade, that was erroneously submitted to IFUS as a 180 lot exchange for physical transaction, within the 5 minute reporting window for block trades in Russell 2000 Index Mini Futures Contracts. $25,000 fine. CME GROUP CME 14-0004-BC Misc. Violation of Rule 432(c) and (g) - General Offenses (in part). A non-member individual allegedly executed multiple round-turn transactions in various E...

**To make our monthly futures exchange reports more concise and user-friendly, we have narrowed the scope to cover relevant enforcement actions and generally not to cover routine exchange issuances. Disciplinary Actions CME GROUP CME 13-9587-BC-3 Pre-Arranged Trades Violation of Rules 521 - Requirements for Open Outcry Trades (in part); 539 - Prearranged, Pre-negotiated and Noncompetitive Trades Prohibited (in part). On more than one occasion between July 9, 2013, and July 31, 2015, a member allegedly executed a portion of customer orders that was not bid openly and competitively in the pit...

On January 27, 2016, TOTAL Gas & Power North America, Inc. ("TGPNA") and two natural gas traders filed a complaint for declaratory relief in the U.S. District Court for the Western District of Texas against the Federal Energy Regulatory Commission ("FERC") claiming that FERC intends to violate TGPNA's statutory and constitutional rights by proceeding with an administrative enforcement action against the company for alleged violations of the Natural Gas Act's ("NGA") prohibition on market manipulation. [1] TGPNA's complaint represents a direct attack on the legality of FERC's existing...

December's Highlight On November 4, 2015, the Chairman of the CFTC, Timothy Massad, gave a speech to the Futures Industry Association Futures and Options Expo, in which he focused on the subject of swap data reporting. The Chairman noted the importance of data reporting to swap regulation generally and lauded the progress that has been made since Dodd-Frank. However, despite the significant progress in swap data reporting, the Chairman stressed that improvements to the reporting system are still necessary and that swap dealers need to improve the quality of their reporting, focusing on...

On December 8, 2015, the Federal Energy Regulatory Commission ("FERC") Office of Enforcement held a technical conference respecting FERC's recent Notice of Proposed Rulemaking ("NOPR") on Connected Entity Data. As discussed in an earlier post , if adopted, the NOPR would dramatically increase the amount of information that entities participating in Regional Transmission Organization ("RTO") and Independent System Operator ("ISO") markets would be required to disclose regarding their affiliates, contractual arrangements, and employees. In particular, the NOPR would require each market...

CFTC Order Accepting Settlement with Total Gas & Power North America, Inc. & Therese Tran for Attempted Manipulation of Natural Gas Monthly Index Settlement Prices On December 7, 2015, the Commodity Futures Trading Commission ("CFTC" or the "Commission") issued an order instituting proceedings, making findings, and imposing sanctions (" Settlement Order ") to resolve charges against Total Gas & Power North America, Inc. ("TGPNA") and one of its natural gas traders, Therese Tran, for attempted manipulation of natural gas monthly index settlement prices. The Settlement Order...

November's Highlight In November there were a significant number of disciplinary actions across the exchanges related to pre-arranged trading, including the execution of block trades. The exchanges clearly continue to focus on these types of violations and market participants should be conscious of the rules for pre-arranged trading and the entry of block trades. The fines for these violations can be significant and can include suspensions. For example, this month an entity was fined $70,000 for the actions its traders took to enter buy and sell orders opposite one another to transfer...

October's Highlight October saw the first criminal conviction pursuant to Section 4c(a) for spoofing. A jury concluded that for approximately three months, an individual used a computer algorithm to place orders he did not intend to execute for the purpose of giving the impression that there was significant interest in orders he placed on the other side of the market. The individual and his trading company had already settled allegations of spoofing with multiple CME Group exchanges (CBOT, CEI, CME, and NYMEX) as well as the CFTC in 2013. The CFTC settlement required both to pay a $1.4...

September's Highlight September saw a handful of settlements of ICE Futures enforcement actions related to position limit violations under Rule 6.20(b). The settlements of these actions included monetary fines, disgorgement of profits, and cease and desist orders. Of note, an action related to a single, self-reported violation of the applicable spot month position limit under Rule 6.20(b) resulted in a $35,000 fine and a cease and desist order. These settlements serve as reminders that position limits are tracked intra-day and to the single lot, and exceeding a position limit is a per se...

On September 17, 2015, the Federal Energy Regulatory Commission ("FERC") issued a notice of proposed rulemaking ("NOPR") proposing to significantly expand the information that entities would be required to disclose in order to participate in the wholesale markets administered by Regional Transmission Organizations ("RTO") and Independent System Operators ("ISO"). Notably, while market participants already are required to disclose certain affiliate relationships to the RTOs and ISOs in which they participate, FERC's proposal would require market participants to provide additional...

August's Highlight This past month, the NYMEX Business Conduct Committee ("Panel") entered into a settlement with an entity to resolve alleged violations of Exchange Rule 526- Block Trades and two Market Regulation Advisory Notices, RA1326-4 and RA-1327-4, related to pre-hedging of block trades. The settlement resulted in a fine of $50,000 and disgorgement of $51,315.60 in profits, as well as a $15,000 fine and 5-day suspension against the individual trader involved. Specifically, the Panel found that on four different trade dates the trader pre-hedged block trades by "trading on Globex...

On August 13, 2015, the administrative law judge ("ALJ") assigned to hear evidence in BP America Inc. et. Al (Docket No. IN13-15) issued an Initial Decision in which she found that BP America Inc., and certain of its affiliates (collectively "BP") engaged in market manipulation by intentionally trading to influence index prices to benefit a related financial position. Putting aside the merits of the BP case, the Initial Decision is a good reminder of the kind of circumstantial evidence that regulators might interpret as indicia of manipulation. The reoccurring theme is CHANGE. Whether it be...

Seven years after the Federal Energy Regulatory Commission ("FERC" or the "Commission") first opened an investigation into the trading practices of BP America Inc. and certain of its affiliates (collectively "BP"), on August, 13, 2015, Administrative Law Judge Carmen Cintron ("ALJ Cintron") issued her Initial Decision in the case of BP America Inc. , finding that "BP engaged in market manipulation" by "intentionally [selling] large volumes of next-day physical gas at HSC in a way designed to benefit their corresponding short financial positions." [1] ALJ Cintron agreed with FERC Staff...

July's Highlight Exchange for related positions ("EFRPs") involve an off-Exchange execution of an Exchange contract and, on the opposite side of the market, the simultaneous execution of an equivalent quantity of the corresponding cash or physical position (Exchange for Physical- "EFP"); corresponding related OTC swap or OTC derivative (Exchange for Swap- "EFS"); corresponding futures contract (Exchange for Risk- "EFR"); or the corresponding related OTC option position (Exchange of Options for Options- "EOO"). EFRPs can be great trading tools, offering users the ability to engage in...

The Commodity Futures Trading Commission (CFTC) is engaged in its first court battle interpreting its new anti-manipulation authority under the Commodity Exchange Act (CEA) as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank): CFTC v. Kraft Foods Group, Inc. and Mondelēz Global LLC . [1] The case involves allegations that Kraft Foods manipulated the wheat futures and cash markets in 2011. While the case is still in its infancy, and additional facts may come to light that clarify the CFTC's position, the Complaint can be read to suggest that conduct...

This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges. June Highlight CME Group has released a Webinar on Block Trades summarizing the regulatory requirements in relation to block trades in eligible CME, CBOT, NYMEX, and COMEX products, including minimum block thresholds, pricing, reporting, and important requirements around the use of non-public information. Block trades - large, privately negotiated trades that meet minimum quantity...

After almost eight years since the Federal Energy Regulatory Commission (FERC) commenced its investigation against Barclays Bank PLC (Barclays) and four of its traders, Scott Connelly, Daniel Brin, Karen Levine and Ryan Smith, for allegedly manipulating the California electricity markets, Barclays filed its answer in federal district court. As expected, Barclays denied all of FERC's substantive allegations and asserted that the District Court should give no merit to FERC's findings of fact or legal conclusions. FERC, according to Barclays and the individual traders, must prove its case before...

This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges. May's Highlight This past month, CME Group released Market Regulation Advisory Notice RA1506-5, which conveniently combines in one location all of CME Group's prior regulatory guidance on block trades in CME, CBOT, NYMEX, and COMEX products. CME Group has been giving increasing scrutiny to block trades in recent years and unfamiliarity with the specific rules related to such trades could...

For the past two years we have been tracking and reporting on an enforcement proceeding brought by the Federal Energy Regulatory Commission ("FERC") against Barclays Bank PLC ("Barclays"), Daniel Brin, Scott Connelly, Karen Levine, and Ryan Smith (collectively, the "Traders" and together with Barclays, "Defendants") for alleged manipulative trading in the western electricity markets from November 2006 to December 2008. Yesterday, the United States District Court for the Eastern District of California denied a motion by the Defendants to dismiss the manipulation action. Although the court'...

This report summarizes material notices from CME Group and ICE Futures, with a particular focus on energy. It is not intended to be a comprehensive review of each and every notice issued by these Exchanges. On April 21, 2015, the CFTC announced via press release that charges had been filed against a resident of the United Kingdom ("UK"), Navinder Singh Sarao ("Sarao"), and his company, Nav Sarao Futures Limited PLC, for price manipulation and spoofing. The charges came after a comprehensive investigation of Sarao's trading activity by the CFTC, which included assistance from the SEC, DOJ,...

February's Highlight This month, CME Group announced fines totaling $1.75 million against derivatives broker Newedge USA for violations of exchange rules in certain metal markets over the course of two years. Newedge agreed to the fine pursuant to an offer of settlement in which Newedge neither admitted nor denied the rule violations upon which the penalty was based. Specifically, Panels for both the NYMEX Business Conduct Committee and the COMEX Business Conduct Committee found that Newedge violated exchange Rule 432, Rule 529, Legacy Rule 538.A, Legacy Rule 538.G, and Legacy Rule 538.H.,...

January's Highlight The exchanges are starting off 2015 with a continued focus on investigating and penalizing violations of disruptive trading practices, as well as pre-arranged trading and block trading. These three categories represented a large majority of the exchanges' enforcement efforts in 2014, and from what we saw in January, they will continue to remain a focus going forward. On this note, this month the ICE Futures Exchange will implement an amendment to Rule 4.02, adding section (l) to consolidate rules that prohibit disruptive trading practices. The new text of Rule 4.02(l)...

Last month, the Federal Energy Regulatory Commission (FERC) issued an Order Approving Stipulation and Consent Agreement [1] (EnerNOC, Inc., 141 FERC ¶ 61,211 (2012)) to resolve an investigation by the Office of Enforcement (Enforcement) into whether EnerNOC, Inc. (EnerNOC) submitted inaccurate metering data to ISO New England (ISO-NE) without exercising due diligence and to address multiple late filings by EnerNOC's wholly-owned subsidiary, Celerity Energy Partners San Diego LLC (Celerity). EnerNoc is a demand response provider and Celerity is an operator/lessor of Network Distribution...

A panel of the United States Court of Appeals for the Fifth Circuit has vacated the Federal Energy Regulatory Commission's (FERC) Order Nos. 720 and 720-A , which imposed new requirements on non-interstate pipelines not normally subject to FERC's jurisdiction over interstate natural gas pipelines. In an October 24, 2011 decision , the Court concluded that the orders exceed the scope of FERC's statutory authority under the Natural Gas Act of 1938 (NGA). In their petitions for review of the orders, the Texas Pipeline Association and the Railroad Commission of Texas argued that FERC had exceeded...