How bad can a wash trade violation and Tag50 penalty really be? Permanent ban from the CME markets bad enough?
DCM has stressed again and again and again that wash trades are not just a little issue to sweep under the rug. And trying to be "smart" about how you do it doesn't work. And thinking that because you are not within the physical jurisdiction of the US means you won't get punished. On Friday, the CME issued four related disciplinary notices (CME-19-1100 and NYMEX-19-1100 BC, BC2, and BC3 - notices here, here, here, and here).
All four individuals were disciplined in the same docket though the rules cited were differing.
In one instance, the individual was cited for allowing orders that he knew or should reasonably known were wash trades to be entered on the exchange as well as allowing another individual to use the trader's Tag50 log in. This person also did not respond in writing to the charges and, therefore, waived a right to a hearing on the charges. The penalty - $40K fine and a two year suspension from CME markets from the date the $40K is paid.
In the second instance, the individual failed to appear before the CME Disciplinary Committee or any staff interview in connection with an investigation (the same docket number as the other three individuals). For the failure to respond, the individual was fined $10K and was suspended immediately for a period that would extend for two years from the date the fine was paid.
The third individual was cited for illegally prearranging trades (since the docket is the same as the other three, it may likely be assumed these trades resulted in the wash trades cited above) for the purposes of shifting equity between accounts. The individual was also cited for allowing another person to enter trades utilizing his Tag50 ID. The individual also failed to submit a written answer to charges. This individual was fined $85K and was permanently banned from all CME markets.
The final individual was cited for the same issues - pre-arranged trades to transfer equity and TAG50 violations - as the prior individual as well as failure to supervise her employees. In this instance the penalty was a fine of $85K, a disgorgement of profits of $125,940 and a permanent ban from all CME markets.
It should be noted that these bans now also include any swap execution facility and derivatives clearing organization owned or operated by the CME.
Wash trades have permanently impacted all of these individuals and failure to resppond to the CME has exacerbated there penalties. Wash trades are one of the most straight forward surveillance tools to implement. You should consider having one in place if you have any activity in more that one account with the same beneficial owners.