The Commodity Futures Trading Commission has fined Nasdaq Futures, formerly a designated contract market (DCM), after failing to properly establish, monitor, or enforce rules related to an incentive program offered to certain traders on its DCM.
According to the order, Nasdaq Futures, Inc. also did not fully disclose this incentive program’s details to the CFTC or the public consistent with the requirements of the Commodity Exchange Act (CEA) and Commission Regulations.
Additionally, Nasdaq Futures was found to make false and misleading statements to the CFTC regarding the incentive program. To settle the matter, Nasdaq Futures was ordered to pay a $22 million civil monetary penalty.
CFTC Director of Enforcement Ian McGinley said: “The CFTC’s oversight regime depends upon CFTC-designated exchanges providing the CFTC and market participants accurate information. Nasdaq Futures, Inc.’s conduct here represents significant violations of both its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges.”
Nasdaq Futures employees lied to the CFTC over market making program
The regulatory violations took place between 2015 and 2018, when Nasdaq Futures operated as a DCM focused on energy commodity futures contracts.
Its “Designated Market Maker” (DMM) program officially paid a fixed monthly stipend to market makers, but it was found to also make payments to a select number of DMM program participants that were based on the total volume of contracts those participants traded; this volume-based component was not disclosed to the CFTC, as required.
The CFTC found that Nasdaq Futures, Inc.’s rule submissions omitted or explicitly denied the existence of a volume-based incentive as part of the DMM program. When asked by the regulator, the firm’s employees repeatedly denied there was a volume-based component to the DMM program.
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