The CME issued a pair of disciplinary notices yesterday for a related set of "money pass" fines (the NYMEX notice is here). Money pass can be considered a specific form of pre-arranged trades where there is no position taken in the market but value is transferred from one account to another. This is normally performed by have a pair of round trip trades between the same accounts where one account profits and the other loses.
In this case, the individual fined was not only passing money between two accounts, the person was using someone else's Tag 50 (log in) to effectuate the transfer. The fine was $80,000 split between the NYMEX and CME and the individual was suspended from accessing any CME markets for five years.
The interesting part of this disciplinary action is that the NYMEX fine was related to Rules 533 - Simultaneous Buy and Sell Orders for Different Beneficial Owners, Rule 534 - Wash Trades Prohibited, and Rule 576 - Identification of Globex Terminal Operators. The CME disciplinary action was for violation of Rule 432.G - Money Pass Prohibited and Rule 576 - Identification of Globex Terminal Operators. The NYMEX has the same Rule 432.G but acted under the Wash Trade and Simultaneous Order Rules instead.
The prohibition arrives at the same place regardless of the set of rules applied but this points out that the exchanges have rules that, in instances, overlap. Since the practice does involve two offsetting trades with no intention of taking a position of risk in the market, money pass can be considered a special instance of wash trades.
The other instance that DCM has learned about in the past has been well out of the money options - buying and selling them between the same account - especially during periods of minimal activity and liquidity - has also been a place where this has occurred.
As some of the exchange concerns also relate to potential instances of passing money for other purposes that might implicate improper payments, firms should realize this is an area that exchanges have very specific surveillance models to detect. As with all rules, this is an area any firm should ensure it has the ability to detect any staff action to violate these rules.