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Nyse Liffe ordered to improve trade surveillance

26 April 2012  |  2216 views  |  0 Source: CFTC

The Commodity Futures Trading Commission (Commission) has notified NYSE Liffe U.S. (NYSE Liffe or Exchange) of the results of a rule enforcement review completed by the Commission's Division of Market Oversight (Division).

The review covered the period from November 1, 2009, through November 1, 2010 (target period). The Division assessed NYSE Liffe's compliance with core principles relating to its trade practice surveillance program. NYSE Liffe contracted with the National Futures Association (NFA) to perform certain regulatory services on behalf of the Exchange, including trade practice surveillance. Therefore, the review also examined NFA's performance of its NYSE Liffe trade practice surveillance responsibilities.

Although the Division believes that NYSE Liffe maintains an adequate trade practice surveillance program, the Division identified some areas in which NYSE Liffe needs to make improvements. The Division recommended that: (1) NYSE Liffe's Regulatory Oversight Committee monitor the workload of the Exchange's Compliance Department and Chief Regulatory Officer (CRO); (2) NYSE Liffe and NFA together review NFA's resources dedicated to trade practice surveillance at the Exchange to determine whether those resources are sufficient in light of significantly increased trading volume since the close of the target period; (3) NYSE Liffe's CRO promptly review all NFA closed inquiry reports; (4) NYSE Liffe close-out memoranda for any investigation referred by NFA and closed administratively by the Exchange's Compliance Department should include sufficient information to explain any final action taken; (5) NFA logs should indicate the date an initial automated trade exception or other activity led to an inquiry or investigation; (6) NFA should periodically provide NYSE Liffe with a log of all matters in a pre-inquiry stage; (7) NFA should increase the number of proactive reviews it performs for NYSE Liffe markets; (8) NYSE Liffe should reduce the amount of time it takes to review and take action with respect to completed investigations referred by NFA; (9) NYSE Liffe should require market participants whose automated trading systems or algorithms result in trading patterns that are indicative of apparent violations of Exchange rules to discontinue the use of such systems or algorithms until the cause of the apparent violations is identified and remedied; and (10) NYSE Liffe should ensure that its participation in NFA's investigations of potential Exchange rule violations, including any intermediation of discussions between NFA and Exchange market participants, does not delay NFA's investigatory process.

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