On September 18, ICE Futures US issued a disciplinary notice for a fine for disruptive trading in the cocoa contract. The fine was for a company for "failure to diligently supervise". The notice states that an employee of the firm "engaged in a pattern of manually placing a single or multiple fully-visible large order(s) on one side of the market while having a smaller order resting on the opposite side. In each instance, Traditum’s employee manually deleted the large order(s) within seconds of the smaller order trading. Therefore, the large orders did not appear to be entered with the intent to trade.
The Subcommittee determined that Traditum may have violated Exchange Rule 4.01(a) in that Traditum had insufficient policies, procedures, and systems in place to train employees and monitor trading activity relative to Traditum’s size of operations and activity on the Exchange.
Fine was $90K. Please note, this was not a fine for the activity but for failure to train and supervise - including " insufficient policies, procedures, and systems". DCM has received increasing inquiries for compliance policy and procedures reviews as well as training sessions. One thing we here from these clients is that senior management does not want to have to explain to investors why they are deemed to have inadequate procedures. In addition, they hear from the exchange during discussions regarding violations that they expect an improvement in these areas.
This has become more of a hot button issue in the last year. The increasing number of failure to supervise or inadequate supervision fines has led firms to realize that an inquiry can expose this risk even if the underlying issue is resolved. It is a good compliance risk control to take a look back to make sure your documentation would stand up to exchange review.