Nasdaq Futures has received a US$22 million penalty from the Commodity Futures Trading Commission (CFTC) for failing to sufficiently establish, monitor or enforce rules related to an incentive programme offered to certain debt capital market (DCM) traders.
From July 2015 to July 2018, the CFTC says, Nasdaq Futures offered a range of incentive programmes to certain traders in the contract market while operating as a DCM focused on energy commodity futures contracts.
One such incentive was the Designated Market Maker (DMM) programme, which paid a fixed monthly stipend to market makers and was disclosed both to the CFTC and the public. However, the commission found that certain programme participants were also given payments based on the total number of contracts that they traded, an element that was not disclosed. In rule submissions, Nasdaq Futures either omitted or explicitly denied the existence of these volume-based incentives within the programme, and interviews with staff on the topic garnered equal denials.
Recommendations from Nasdaq Futures’ regulatory service provider to contact three DMM programme participants about particular trading activities were not followed, nor was documentation made of why these actions were not taken.
“Nasdaq Futures, Inc. reasonably should have known all such denials, statements, and omissions were false and misleading at the time,” the CFTC stated.
The firm’s lack of disclosure to the CFTC, the public, its own compliance staff and its regulatory service provider violated a number of DCM Core Principles mandated in the Commodity Exchange Act (CEA) and commission regulations, it concluded.
Ian McGinley, director of enforcement at the CFTC, commented: “The CFTC’s oversight regime depends upon CFTC-designated exchanges providing the CFTC and market participants accurate information. Nasdaq Futures’ conduct here represents significant violations of both its duty to provide such information and several statutory core principles applicable to CFTC-designated exchanges.”
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