CME fines BBVA Asset Management for alleged violations of wash trades prohibition
International derivatives marketplace CME Group has published a notice of disciplinary action against BBVA Asset Management, S.A., S.G.I.I.C.
Pursuant to an offer of settlement in which BBVA Asset Management, S.A., S.G.I.I.C. neither admitted nor denied the rule violations or factual findings upon which the penalty is based, a Panel of the Chicago Board of Trade (CBOT) Business Conduct Committee found that on December 1, 2021, a single decision-maker at BBVA AM used a broker to execute two block trades in December 2021 Bloomberg Commodity Index futures between accounts with common beneficial ownership for the purpose of rebalancing the two accounts.
Given that the trader was the sole decision maker for these trades, BBVA AM knew or reasonably should have known that the transaction would produce a wash result.
Additionally, the Panel found that the block trades constituted a significant portion of the total daily volume for that instrument.
Finally, the Panel found that BBVA AM failed to properly advise and train its employee as to relevant Exchange rules and Market Regulation Advisory Notices (MRANs) in a manner sufficient to ensure compliance with the same.
The Panel concluded that as a result of the foregoing, BBVA AM violated CBOT Rules 534 and 432.W.
The relevant rules state:
- Rule 534. Wash Trades Prohibited
No person shall place or accept buy and sell orders in the same product and expiration month, and, for a put or call option, the same strike price, where the person knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk (transactions commonly known or referred to as wash sales). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violation the prohibition on wash trades. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.
- CBOT Market Regulation Advisory Notice RA 2109-5 (in relevant part)
3. Block Trades between Different Accounts with Common Beneficial Ownership
Block trades between different accounts with common beneficial ownership are prohibited unless 1) each party’s decision to enter into the block trade is made by an independent decision-maker; 2) each party has a legal and independent bona fide business purpose for engaging in the block trade; and 3) the block trade is executed at a fair and reasonable price. In the absence of satisfying all the aforementioned requirements, the transaction may constitute an illegal wash trade prohibited by Rule 534 (“Wash Trades Prohibited”). Common beneficial ownership is defined as not only accounts with the same beneficial ownership, but also accounts with common beneficial ownership that is less than 100%.
- Rule 432. General Offenses (In Part)
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 BBVA AM to pay a fine of $25,000.