CME fines Nomura for violating wash trades prohibition
CME Group has published a notice of disciplinary action against Nomura Securities International, Inc.
Nomura has agreed to pay a fine to settle allegations about CBOT rule violations. A Panel of the Chicago Board of Trade (CBOT) Business Conduct Committee found that on February 19, 2021, Nomura executed an Exchange of Futures for Risk (EFR) transaction in the March 2021 5-Year Treasury Note futures market. The transaction consisted of the simultaneous exchange of futures positions without a bona fide transfer of ownership of the underlying assets thereby constituting a non-bona fide EFR.
The Panel further found that Nomura executed this transaction for the purpose of transferring future positions between accounts with common beneficial ownership.
The Panel concluded that Nomura violated CBOT Rules 534 and 538.C.
- 538.C. Related Position
The related position component of an EFRP must be the cash commodity underlying the Exchange contract or a byproduct, a related product or an OTC derivative instrument of such commodity that has a reasonable degree of price correlation to the commodity underlying the Exchange contract. The related position component of an EFRP may not be a futures contract or an option on a futures contract. Each EFRP requires a bona fide transfer of ownership of the underlying asset between the parties or a bona fide, legally binding contract between the parties consistent with relevant market conventions for the particular related position transaction.
The execution of an EFRP transaction may not be contingent upon the execution of another EFRP or related position transaction between the parties where the transactions result in the offset of the related position without the incurrence of market risk that is material in the context of the related position transactions.
The facilitation of the execution of an EFRP by any party that knows such EFRP is non bona fide shall constitute a violation of this 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 trades or 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 violate the prohibition on wash trades. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.
In accordance with the settlement offer, the Panel ordered Nomura to pay a fine in the amount of $50,000.
The effective date of the notice is October 21, 2021.