WASHINGTON, D.C. — The Commodity Futures Trading Commission today issued an order filing and settling charges against Merrill Lynch Commodities, Inc., based in Houston, for exceeding the federal and ICE Futures U.S. position limits in contracts that reference natural gas futures traded on the New York Mercantile Exchange and for swap dealer supervision and position limit monitoring failures.

MLCI admits the facts in the order in section II.C.1, Position Limit Violations; acknowledges its conduct in that section violated the Commodity Exchange Act and CFTC regulations; and otherwise, neither admits nor denies the findings of fact.

“Federal and exchange position limits are important guardrails that help ensure the integrity of our markets and entities must comply,” said Director of Enforcement Ian McGinley. “Additionally, swap dealers must comply with the business conduct standards in the CEA and CFTC regulations, including diligently supervising their employees and agents and monitoring for position limit violations.”

The order requires MLCI to pay a $1.5 million civil monetary penalty, cease and desist from further violations of the CEA and CFTC regulations as charged, and comply with conditions and undertakings specified in the order. 

Case Background

The CFTC established federal speculative position limits for certain physical-delivery referenced contracts, including the NYMEX Henry Hub Natural Gas Futures (NG) contract. The financially settled ICE Henry LD1 Fixed Price Futures (H) contract references the monthly settlement price published by NYMEX for its NG futures contract. The federal speculative position limit for ICE H contracts, as well as the exchange-set limit, is 2,000 NYMEX NG futures equivalents.

The order finds on certain trading days during March and April 2023, MLCI held positions in the April 2023, and May 2023, ICE H futures contract, respectively, that ranged from more than 200 contracts to nearly 1,000 contracts in excess of both the federal speculative position limit and the exchange speculative position limit, and MLCI’s positions did not meet the requirements for an exemption under CFTC Regulation 150.3. MLCI also had not been granted an exemption applicable to the relevant positions by the exchange in accordance with ICE’s rules during the relevant period.     

The order also finds MLCI, a swap dealer registered with the CFTC, did not establish and enforce written policies and procedures reasonably designed to monitor for and prevent violations of applicable federal, exchange, or swap execution facility position limits and to monitor for and prevent improper reliance upon any exemptions or exclusions from such position limits. Additionally, the order finds MLCI did not diligently supervise its employees by lacking an early warning system and written policies and procedures reasonably designed to detect and alert its senior management when position limits were in danger of being breached.

The order acknowledges MLCI’s cooperation and its representations concerning its remediation in connection with this matter.

The CFTC thanks ICE for its assistance in this matter.

The Division of Enforcement staff responsible for this matter are Karin N. Roth, Carrie Kennedy, Gates S. Hurand, Lenel Hickson, Jr., and Manal M. Sultan.