CFTC Notifies the New York Cotton Exchange of Its Results of a Rule Enforcement Review

Release: #4173-98
For Release: July 29, 1998

CFTC Notifies the New York Cotton Exchange of Its

Results of a Rule Enforcement Review

The Commodity Futures Trading Commission (Commission) has notified the New York Cotton Exchange (NYCE or Exchange) of the results of a limited-scope rule enforcement review completed by the Commission's Division of Trading and Markets (T&M). The purpose of the review was to evaluate NYCE's trade practice surveillance and disciplinary programs for compliance with sections 5a(a)(8) and 5a(b) of the Commodity Exchange Act and Commission regulation 1.51. The target period for the review was September 1, 1996 to August 31, 1997.

T&M found that NYCE's trade practice investigations were thorough, well-documented, and generally completed in a timely manner and that investigation reports complied with Commission regulations. In regard to NYCE's disciplinary program, T&M found that disciplinary matters are promptly referred to disciplinary committees, disciplinary action is taken in a reasonably timely manner, and findings appear to be supported by the evidence. During the review's target period, NYCE imposed a total of $50,900 in fines and several suspensions and cease and desist orders for trade practice, audit trail, and recordkeeping violations.

T&M also found aspects of NYCE's programs that should be improved. First, NYCE's Compliance staff lost a number of its investigators, diminishing NYCE's ability to perform its self regulatory responsibilities. Second, many of the trading documents examined by NYCE staff during the course of investigations reflected possible recordkeeping violations which went unnoticed by Exchange staff. Third, T&M found one disciplinary case where NYCE imposed a fine that was inappropriately small relative to the profit made in connection with a transaction involving a customer order.

Accordingly, T&M recommended that NYCE report its plans for hiring additional Compliance investigators; that it identify possible recordkeeping violations revealed during an investigation and issue appropriate sanctions; and that it consider any profit made by a member from his or her violative conduct in determining an appropriate sanction.

T&M's report sets forth recommendations for improvement to address these issues. NYCE will have 60 days to respond to the recommendations. Copies of the report are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21^st St., N.W., Washington, D.C. 20581, (202) 418-5080.