CFTC Notifies the Commodity Exchange, Inc., Division of the New York Mercantile Exchange of the Results of a Rule Enforcement Review

Release: �� #4293-99
For Release: �� July 27, 1999

CFTC NOTIFIES THE COMMODITY EXCHANGE, INC. DIVISION OF THE NEW YORK MERCANTILE EXCHANGE OF THE RESULTS OF A RULE ENFORCEMENT REVIEW

The Commodity Futures Trading Commission (Commission) has notified the Commodity Exchange, Inc. Division (COMEX) of the New York Mercantile 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 COMEX's trade practice surveillance and disciplinary programs, and certain aspects of its audit trail. The target period for the review was July 1, 1997 to June 30, 1998.

T&M found that COMEX generally maintains adequate trade practice surveillance and disciplinary programs. T&M also found that COMEX generally maintains an adequate program for conducting order ticket and trading card recordkeeping reviews.

COMEX's trade practice investigations are thorough, well-documented, and generally completed in a timely manner. In addition, COMEX members generally demonstrate a high level of compliance with respect to order ticket content requirements. T&M found, however, that although members generally demonstrate a high level of compliance with a number of trading card recordkeeping standards, compliance needs to improve regarding several important requirements.

Accordingly, T&M recommended that COMEX increase its required trading card compliance level similar to that in place for its order ticket compliance, and issue a notice to members reminding them of their trading card responsibilities. In addition, although T&M found evidence that trading cards are routinely reviewed during trade practice investigations, several investigation files did not include work papers documenting the review. Therefore, T&M recommended that COMEX ensure that these workpapers are included in investigation files.

In regard to COMEX's disciplinary program, disciplinary matters are promptly referred to a disciplinary committee and findings appear to be supported by the evidence. During the target period, fines totaling $115,000 and membership suspensions totaling 370 days were imposed. However, T&M also found that restitution was not ordered in cases where customer harm was determined. T&M therefore recommended that COMEX order restitution in all settlements and disciplinary decisions where the amount of customer harm can be determined.

COMEX will have 60 days to respond to these and other recommendations set forth in the report. Copies of the report are available from the Commission's Office of Public Affairs, Three Lafayette Centre, 1155 21^st Street, N.W., Washington, D.C. 20581, (202) 418-5080, or by accessing the Commission's website at www.cftc.gov.