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​Industry, Compliance, Strategy and Regulatory Updates

Can we agree that wash trades are not allowed, please? Once again a group did them.. and got caught.

11/27/2018

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After crawling out of a long turkey induced stupor and realizing I hadn't been looking at my reading material, I came across the latest group think on wash trades. There were three separate issued disciplinary notices in COMEX-16-569-BC, all relating to wash trades that were pre-arranged but not performed properly on the exchange.
You are allowed to pre-arrange a trade IF you post the first side and then wait 5 seconds before posting the other side. The CME even lays out the citation (Rule 539.C) and cites how you do this.
But the parties in these cases did not follow the rules and, to make matters worse, one person also violated the rule I frequently talk about, Rule 576 regarding use of the Tag 50 IDs but individuals other than the person it was issued to.
So, they were prearranging the trades and one of the parties was using another person's Tag 50 to execute (in some cases).
The two individuals who executed wash trades but did not violate the Tag 50 ID rule were given minor fines ($5K and a six month suspension from trading in one case and $35K and a one month suspension in the other case). The third person with the Tag 50 issues was fined $45K and permanently barred from all CME exchanges. That notice COMEX_16-0569-BC-2 is here - https://www.cmegroup.com/notices/disciplinary/2018/11/COMEX-16-0569-BC-2-THOMAS-POULOSE.html#pageNumber=1
It is not worth trying to do this - the exchange will find the pattern of executions and the result won't be pleasant. 
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    Thomas Lord

    DCM Founder
    Commodity Adviser

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