International derivatives marketplace CME Group has posted a notice of disciplinary action against BlackEdge Capital LLC.
Pursuant to an offer of settlement in which BlackEdge Capital 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, BlackEdge traded a box spread in Options on Three-Month SOFR futures market to increase incentives it would receive as a participant in the SOFR Options Transition Incentive Pool Program.
The incentive program distributed financial incentives to participants from a pool that increased if the product’s average daily volume reached certain thresholds.
On June 23, 2023, Firm A, another participant in the incentive pool program, contacted BlackEdge via instant message. Firm A noted that the volume was just under the highest threshold for the incentive pool, and asked if BlackEdge was interested in trading SOFR. BlackEdge confirmed its interest in trading SOFR and then spoke to Firm A via telephone. Shortly after the call, Firm A created a box spread in Options on Three-Month SOFR futures and, over the next minute, entered multiple orders to buy the box spread. BlackEdge traded opposite each of those orders and then exited the positions by purchasing the box from other market participants at the same spread price.
The volume traded in the box spread on June 23, 2022, raised the average daily volume over the highest volume threshold required to maximize incentive payouts provided by the SOFR Options Transition Incentive Pool Program.
The Panel found that BlackEdge received an additional $171,653 in payouts from the incentive pool as a result of trading the box spread. The Panel concluded that as a result of the foregoing, BlackEdge violated CME Rule 432.B.2.
In accordance with the settlement offer, the Panel ordered BlackEdge to pay a fine of $50,000 and disgorgement of the benefit in the amount of $171,653.
The effective date of the notice is June 14, 2024.
