TLDR:
- Nasdaq Futures fined $22 million by CFTC for regulatory breaches
- Failed to disclose volume-based component of incentive program
- Made false statements to CFTC about the program
- Violated Commodity Exchange Act and CFTC regulations
- Case covers period from July 2015 to July 2018
Nasdaq Futures, Inc., a former designated contract market (DCM) specializing in energy futures contracts, has been ordered to pay a $22 million civil monetary penalty by the Commodity Futures Trading Commission (CFTC).
The fine comes as a result of significant regulatory breaches involving the company’s incentive programs between July 2015 and July 2018.
The CFTC’s investigation revealed that Nasdaq Futures failed to properly establish, monitor, and enforce rules related to an incentive program offered to certain traders on its DCM.
The program in question, known as the “Designated Market Maker” (DMM) program, included a volume-based component that was not disclosed to the CFTC or the public, as required by the Commodity Exchange Act (CEA) and CFTC regulations.
While Nasdaq Futures publicly reported a fixed monthly stipend for market makers participating in the DMM program, it omitted crucial information about additional payments made to select participants based on their trading volume.
This undisclosed aspect of the program allegedly influenced payments to certain traders, creating an unfair advantage in the market.
The CFTC’s order states that Nasdaq Futures not only failed to disclose this volume-based component but also provided false and misleading information when questioned about its existence.
Company representatives repeatedly denied the presence of any volume-based incentives in the DMM program, despite clear evidence to the contrary.
Ian McGinley, CFTC Director of Enforcement, emphasized the importance of accurate information in the regulatory process, stating,
“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 its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges.”
The failure to disclose the volume-based component of the DMM program led to violations of several DCM Core Principles mandated by the CEA. These principles are designed to ensure fair and transparent markets, and Nasdaq Futures’ actions undermined these fundamental regulatory requirements.
The CFTC found that Nasdaq Futures did not follow recommendations from its regulatory service provider to address specific trading activities related to the DMM program.
The company failed to contact three program participants about certain trading activities or document why it chose not to do so, violating CFTC regulations.
The case against Nasdaq Futures highlights the CFTC’s commitment to maintaining the integrity of futures markets and ensuring compliance with regulatory requirements. By imposing this significant penalty, the CFTC sends a clear message to market participants about the importance of transparency and adherence to regulatory obligations.
Nasdaq Inc., which sold the futures exchange business in November 2019, has stated that they are pleased to have resolved the matter with the CFTC. The current order applies to Nasdaq Futures’ operations during the period it functioned as a DCM focused on energy futures contracts.
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