The leading US derivatives regulator has told market operator the CME Group to improve monitoring procedures and review its market surveillance staffing levels after a recent review.
A Commodity Futures Trading Commission (CFTC) rule enforcement review of CME Group’s Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT) exchanges found the firm was inadequately monitoring exchange for related position (EFRP) transactions. The review covered the period from 1 November 2010 to 31 October 2011.
EFRP transactions cover the exchange of positions in underlying physical instruments, OTC swaps or OTC options for corresponding futures or options positions.
The CFTC has recommended that the exchanges should ensure their procedures are actively targeting problematic EFRPs, as well as ensuring parties maintain adequate documentation.
“[The exchanges should] establish an adequate and robust program to ensure that parties and clearing firms to EFRP transactions maintain relevant documents pursuant to the Exchanges’ rules and, accordingly, verify the bona fides of a sufficiently larger, strategically selected sample of EFRPs,” the regulator said in a statement.
While both exchanges were found to have adequate and highly skilled market surveillance staff at the time, the CFTC recommended they should review whether current staffing levels were sufficient to implement the tightened procedures it outlined.
The CFTC also recommended CME Group exchanges should improve several other areas, including conducting timely investigations, acquiring appropriate and dated signatures on investigatory documents and improve hedge exemptions procedures.
The findings and recommendations only affect CME and CBOT and not any other CME Group venues.