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DCM Blog 
​Industry, Compliance, Strategy and Regulatory Updates

Mitsubishi Oil had a large trader loss - the metals desk also had a "failure to supervise" issue at CME

11/7/2019

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One of the areas DCM has addressed multiple times this year (and last year) is the exchanges increasing trend towards imposing "failure to supervise" fines on the companies where traders have improper behavior. Mitsubishi  RTM (the metals trading side - not the oil side) was just fined $250,000 for "failure to supervise". The disciplinary notice had a couple items that you don't always see but that we stress in our review of training programs:
1. The company "failed to properly train one of its traders, a secondee (“Trader A”), who had no prior trading experience, before placing Trader A into a temporary trading rotation to trade futures on NYMEX".
  • Companies should always have a structured and rigorous "movers and joiners" training program;
  • The program should cover traders, compliance oversight staff, and operations staff in mid and back office
​2. New staff should always have strict structures around permissible trading activity. Trade limits and controls should be strictly enforced. The CME noted something I haven't seen before:
"
ailed to provide sufficient training specific to trading CME Group markets, or CME Group trading rules, including disruptive trading, to Trader A. As a result, Trader A attempted to trade through experimentation, resulting in executing disruptive trades that violated Exchange rules."
  • "trade through experimentation" is such a wonderful phrase; it may explain much of my trading career
​3. The CME made a significant statement of the responsibility chain:
"
The Panel concluded that, pursuant to Exchange Rule 433, (it) was strictly liable for the acts of its employee whose conduct the Panel concluded violated Exchange Rule 575.A."
  • the language is frequently associated with liability but the "strictly liable" is a particular emphasis here
​
The trading appears to have been basic spoofing or disruptive trading but the fine indicates the exchange's displeasure with the lack of training. This should be a blueprint for new shops entering US markets or expanding organizations.

​The CME notice is here

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    Thomas Lord

    DCM Founder
    Commodity Adviser

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