Aggregated News From Investment Management Regulators

CFTC Orders Designated Contract Market to Pay $6.5 Million for System Safeguard, Reporting, and False Statement Violations

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Washington, D.C. — The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against CX Futures Exchange, L.P. (CX), a designated contract market headquartered in New York, N.Y., for violations of the Commodity Exchange Act (CEA) and CFTC regulations relating to system safeguards, swap reporting, option reporting, and a giving a false statement to the CFTC.

The order requires CX to pay a $6.5 million civil monetary penalty, cease and desist from violating the applicable provisions of the CEA and CFTC regulations, and comply with certain conditions and undertakings, including that CX back-report all required swap reporting data.

“The Commission’s system safeguard regulations are critical for protecting the security of the financial markets,” said Acting Director of Enforcement Gretchen Lowe. “The CFTC will continue to promote the safety and reliability of our markets by ensuring that all designated contract markets comply with these rules.”

Case Background

The order finds from approximately September 2017 to August 2021, CX failed to comply with multiple aspects of system safeguard regulations applicable to designated contract markets. In particular, CX failed to conduct controls testing; failed to conduct sufficient internal and external penetration testing; failed to conduct adequate enterprise technology risk assessments (ETRA); failed to review ETRAs and testing results at the board level; and failed to notify the CFTC in a timely manner of a planned change to its automated systems that may impact the security of such systems. 

In addition, the order finds from approximately November 2017 to at least June 2020, CX failed to report certain data for over 200,000 options transactions to the CFTC, consisting primarily of weather-related binary options and pari-mutuel options contracts, in violation of the CFTC’s options reporting regulations. And, from approximately November 2017 to at least August 2022, CX failed to report certain data for the same transactions, which were also considered swaps, to a swap data repository (SDR), in violation of the CFTC’s swap reporting regulations. 

The order also finds that in connection with a 2017 request for a no-action letter regarding its SDR reporting obligations, CX falsely represented to CFTC staff that it was reporting data to the CFTC as required by CFTC’s option reporting regulations and would continue to do so. In fact, CX should have known it was not reporting such data at the time of its request and did not report such data to the CFTC until approximately June 2020.

In accepting CX’s settlement offer, the CFTC recognizes CX’s substantial cooperation during the Division of Enforcement’s investigation. The CFTC notes that CX’s cooperation and remediation are recognized in the form of a reduced civil monetary penalty.

Division of Enforcement staff responsible for this matter are Trevor Kokal, John C. Murphy, Alejandra de Urioste, David W. MacGregor, Lenel Hickson Jr., and Manal M. Sultan. 

The Division thanks and acknowledges the assistance of Rachel Berdansky, Swati Shah, David Taylor, and Kyle Miller from the Division of Market Oversight and Thomas Guerin and Paul Chaffin from the Division of Data. 

This news item was originally published by the Commodity Futures Trading Commission (CFTC US). For more information, see the Source Link.

Regulator Information

Abbreviation: CFTC
Jurisdiction: USA

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