International derivatives marketplace CME Group has published a notice of disciplinary action against CTC Energy LLC.
Pursuant to an offer of settlement in which CTC Energy LLC neither admitted nor denied the rule violations or factual findings upon which the penalty is based, a Panel of the Chicago Mercantile Exchange (CME) Business Conduct Committee found that on June 23, 2022, CTC Energy, a participant in the SOFR Options Transition Incentive Pool Program, contacted another participant in the incentive pool program via instant message.
CTC Energy noted that the volume was just under the highest threshold for the incentive pool and asked if Firm B was interested in trading in SOFR. Firm B confirmed its interest in trading SOFR and, thereafter, CTC Energy spoke to FirmmB via telephone.
As explained in MRAN RA2112-5R, 1. General Overview of Pre- Execution Communications, any communication that involves discussion of the size, side of market, or price of an order, or a potentially forthcoming order, constitutes a pre-execution communication.
Because CTC Energy and Firm B discussed the side of the market for a forthcoming order during the telephone call, that communication constituted pre-execution communications. After the call, CTC Energy created a box spread in Options on Three-Month SOFR futures and, over the next minute, entered multiple orders to buy the box spread. Firm B traded opposite each of those orders.
The transactions arising from the permitted pre-execution communications were not executed in accordance with the requirements set forth in Rule 539.C.
The Panel concluded that as a result of the foregoing, CTC Energy LLC violated CME Rule 539.A.
In accordance with the settlement offer, the Panel ordered CTC Energy LLC to pay a fine of $70,000.
