CME Market Regulation Advisory: New Supervisory
Responsibilities for Trading on CME Exchange
The U.S. Commodity Futures Trading Commission(CFTC) regulates the futures and options markets, ensuring these markets operate with transparency, integrity, and protection for all participants. Under its regulatory regime are Designated Contract Markets (DCMs), including the CME, CBOT, NYMEX, and COMEX. These DCMs function as self-regulatory organizations (SROs), establishing and enforcing their own rules to maintain orderly market conduct.
Recently, the CME Group introduced a new Market Regulation Advisory Notice (MRAN) titled “Supervisory Responsibilities for Employees and Agents,” effective July 16, 2024. Officially labeled CME Group RA2403-5, this advisory replaces previous notices and introduces additional guidance on how parties must fulfill their supervisory obligations within the CME Group's jurisdiction.
New Supervisory Requirements-
Broader Scope of Supervision
The duty to supervise has always been a fundamental aspect of trading on CFTC-registered exchanges. This responsibility now explicitly extends to all parties involved in transactions on CME Group exchanges, whether directly or through an intermediary. The new MRAN leaves no room for doubt: everyone, including operators of Automated Trading Systems (ATS), is required to adhere to these supervision rules.
Comprehensive Supervisory Duties
CME Rule 418 requires that all entities under the exchange’s jurisdiction must implement reasonable measures to prevent rule violations. This involves creating and rigorously enforcing supervisory programs that match the specific business model, organizational structure, and trading activities of the firm. The MRAN highlights where firms have fallen short in the past, such as: failing to adequately train on exchange-specific rules;lLacking effective monitoring of market activities; and neglecting to enforce internal policies or to take corrective actions when violations occur.
Inclusion of Automated Trading Systems
An important aspect of this advisory is the recognition of ATSs—both fully and semi-automated—as "agents" that require supervision. Firms using ATSs must ensure these systems are closely monitored and comply with CME rules. The MRAN details expectations for the deployment, monitoring, and operation of ATSs, including the need for thorough pre-market testing and continuous oversight.
Taking Reasonable Measures to Prevent, Detect, and Correct Noncompliance
The MRAN makes clear that CME expects all entities to:
- Prevent rule violations through thorough training and robust internal controls.
- Detect any violative behavior through diligent monitoring and surveillance.
- Correct noncompliance quickly, which may involve disciplinary actions, enhanced training, or significant changes to trading strategies.
Practical Implications for Market Participants
In light of these requirements, it's essential for all market participants trading on CME Group exchanges to review and update their compliance programs. This includes ensuring that supervisory measures are effective in preventing violations, quickly identifying any issues, and addressing noncompliance appropriately. Firms using ATSs should pay special attention to their unique supervisory responsibilities, ensuring their systems comply with CME rules both before entering the market and during operations.
Firms that do not meet these supervisory standards may face disciplinary actions from CME, including fines or restrictions on market access.
If you're trading on the CME Group exchange and need legal guidance to ensure compliance, our Chicago-based law firm is here to help. We focus on futures and derivatives law, with a deep understanding of CME’s regulatory framework. Contact us for a consultation and secure your firm’s compliance with the latest CME requirements.
For a more in-depth understanding of the MRAN and its potential impact on your trading activities, you can view the full advisory notice on the CME Group website or contact us directly.
R Tamara de Silva
NB This information is provided as a service to clients and friends for educational purposes. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from a legal professional.