The Commodity Futures Trading Commission (CFTC) issued an order that requires Nasdaq Futures to pay a $22m civil monetary penalty over violation of core principles.
According to the order, Nasdaq Futures, previously operated as a designated contract market (DCM), failed to enforce rules related to an incentive programme offered to traders.
Nasdaq Futures did not fully disclose the programme’s details to the CFTC or the public, as per the Commodity Exchange Act (CEA) and Commission Regulations.
In addition, the order found that Nasdaq Futures made false and misleading statements to the CFTC regarding its incentive programme for traders.
CFTC Director of Enforcement Ian McGinley said: “The CFTC’s oversight regime depends upon CFTC-designated exchanges providing the CFTC and market participants accurate information.
“Nasdaq Futures, Inc.’s conduct here represents significant violations of both its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges.”
According to the CFTC order, from July 2015 through July 2018, Nasdaq Futures operated focusing on energy commodity futures contracts.
It offered several incentive programmes to certain traders on its contract market, including its Designated Market Maker (DMM) programme.
Nasdaq Futures disclosed to the CFTC and the public that its DMM programme paid a fixed monthly stipend to market makers.
However, the organisation made payments to a select number of DMM participants that were based on the total volume of contracts those participants traded.
The volume-based component was not disclosed to the CFTC, as required by the CEA and other associated regulations.
Nasdaq Futures employees, when interviewed by CFTC staff about volume-based payment, repeatedly said that there was no volume-based component to the DMM programme.
By failing to disclose the volume-based component to the CFTC, the public, and in-house compliance staff, Nasdaq Futures violates several DCM Core Principles mandated in the CEA.
Furthermore, Nasdaq Futures did not follow its regulatory service provider’s advice to contact three DMM participants about certain trading activity, in violation of a CFTC Regulation.
