February 21, 2013 7:38 pm

CFTC sues Nymex over information leaks

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The Commodity Futures Trading Commission is suing the New York Mercantile Exchange, a unit of CME Group, and two former employees for allegedly giving secret customer trading information to an external broker.

The case is the first time the CFTC has sued Nymex since the 1980s, an official said. It reflects a growing push by regulators to hold exchange operators responsible for alleged misconduct.

The CFTC alleges that from early 2008 until November 2010 William Byrnes and Christopher Curtin, the former employees on CME ClearPort Facilitation Desk, provided a broker with order flow information, including “the identities of the parties to specific trades, the brokers involved in trades, the number of contracts traded, the prices paid, the structure of particular transactions, and the trading strategies of market participants.”

CME Nymex was accused of failing to fully investigate a 2009 customer complaint alleging that someone named “Billy” was divulging customer information. Mr Byrnes was identified by the exchange but was never questioned, the CFTC alleges.

It was only after a second complaint, the CFTC alleges, that the CME investigated and fired Mr Byrnes.

Mr Curtin is now vice-president of the control desk, a customer relations platform, for ELX Futures. A spokeswoman for ELX had no immediate comment. Mr Byrnes could not be immediately reached for comment.

The CME said the lawsuit was “disappointing because it relates to incidents that CME Group has already addressed and handled appropriately, and involved no harm to any customer or the markets.”

It added that it had fired the relevant employees after its own review in 2010, but the CME did not address the CFTC claim that it did not act when first alerted to the possible wrongdoing a year earlier.

CME said: “We simply do not believe the CFTC’s claims in this case are fair to Nymex.”

The Nymex energy exchange hosts flagship contracts including US crude, natural gas and heating oil futures. Its ClearPort platform processes swaps derivatives, largely in energy, for backing by the exchange clearinghouse.

CME acquired Nymex in August 2008.

The CME ClearPort desk is responsible for facilitating customer transactions reported for clearing.

The Securities and Exchange Commission sued NYSE Euronext last year for giving customer flow information to some clients over others. NYSE paid a $5m penalty, the first time in its history, to settle, without admitting or denying wrongdoing.

In November 2012, CME sued the CFTC in a rare legal move as it sought the right to bundle trade reporting for swaps with other services, calling a pending commission rule “arbitrary and capricious.”

The exchange operator withdrew the suit after CFTC dropped its insistence that swaps traders be given a choice of venues to report their transactions.

Additional reporting from Gregory Meyer

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