CME fines ADM Investor Services for deficient supervision of employees and agents
International derivatives marketplace CME Group has posted a notice of disciplinary action against ADM Investor Services, Inc.
Pursuant to an offer of settlement in which ADM Investor Services, Inc. (ADMIS) neither admitted nor denied the rule violation or factual findings upon which the penalty is based, a Panel of the Chicago Mercantile Exchange Business Conduct Committee found that from at least January 2015 through September 2019, ADMIS failed to diligently supervise its employees and agents in the handling of accounts carried by ADMIS and introduced by introducing brokers.
Specifically, ADMIS employees and agents failed to detect numerous instances wherein brokers employed by introducing brokers successfully requested account changes and trade transfers between customer accounts in Live Cattle, Feeder Cattle, Lean Hog, E-Mini S&P 500, and E-Mini NASDAQ futures markets, often without the knowledge or permission of the account owners, in order to:
- allocate profitable trades originally executed in accounts the brokers traded to other customer accounts the brokers controlled or managed;
- allocate profitable trades from certain customer accounts into the brokers’ personal accounts;
- allocate positions out of the brokers’ personal accounts and into customers’ accounts, thus allowing the brokers to avoid losses; and
- transfer losing trades from certain accounts to other customer accounts the brokers controlled or managed.
Additionally, the Panel found that ADMIS failed to timely implement enhanced policies and procedures to effectively monitor, detect, and assess account change and transfer requests.
Further, despite evidence of its own deficiencies regarding account change and transfer trade abuse detection, including customer complaints and notice of a complaint involving an employee, ADMIS failed to adequately remediate its processes, which thereby allowed violative conduct to persist for several years.
The Panel therefore concluded that ADMIS violated CME Rule 432.W.
The rule states:
It shall be an offense:
W. for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.
In accordance with the settlement offer, the Panel ordered ADMIS to pay a $450,000 fine in connection with this case and companion cases CBOT and COMEX 20-1401-BC ($175,000 of which is allocated to CME).