The New York Mercantile Exchange ("NYMEX"), a subsidiary of CME, settled CFTC charges for improper disclosures of customers' trading activity by two former NYMEX employees.

According to the Consent Order filed in the United States District Court for the Southern District of New York, between 2008 and 2010, the two NYMEX employees disclosed to a commodities broker, confidential information about derivatives trading activity that they obtained during the course of their employment. The employees disclosed the following types of information as to commodity futures in crude oil and natural gas:

  • the identification of counterparties to option trades;
  • the volume of contracts that were traded;
  • the expiry of options; and
  • strike and trade prices.

The CFTC found that the employees were aware of or "recklessly disregarded" the illegality of their disclosures. The CFTC reported that NYMEX fired one of the employees in 2010 and the other resigned voluntarily in 2009.

To settle its vicarious liability for its employees' violations, NYMEX agreed to a $3.5 million civil monetary penalty. In addition, the two employees were permanently barred from, among other things, trading on any registered entity or on behalf of anyone and registering with the CFTC. The CFTC is pursuing further action against the commodities broker for its role in the misconduct.

Commentary

This is one of those enforcement actions that is somewhat disappointing in what the reader is not told. The first mystery is largely a point of curiosity: if the misconduct stopped in 2010 and the relevant employees were both gone from NYMEX by 2010, why did it take ten years to bring an enforcement action?

More significantly, there is no description of the actual events that might provide guidance as to what NYMEX might have done to prevent the misconduct. That said, this case puts markets on notice, that just as with FCMs and broker-dealers, they must take whatever steps that they can to limit access to customers' trading information and prevent its misuse.

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