On October 13, the Division of Market Oversight (Division) of the Commodity Futures Trading Commission released the results of its rule enforcement review of the market surveillance program of the New York Mercantile Exchange, Inc. and the Commodity Exchange, Inc. (collectively, the “Exchanges”). The review, which focused on the period from March 1, 2014 through March 1, 2015, focused on the Exchanges’ compliance with Core Principle 2 (Compliance With Rules), Core Principle 4 (Prevention of Market Disruption), Core Principle 5 (Position limitations or Accountability) and regulations related to the Exchanges’ market surveillance program. The purpose of the review was to determine 1) whether the program complies with the Core Principles and CFTC regulations; 2) whether there are any deficiencies in the program; and 3) whether the Division should make any recommendations to improve the program. For the purposes of rule enforcement reviews, a “deficiency” is an area where the Division believes an exchange is not in compliance with a CFTC regulation and must take corrective action; and a “recommendation” is in an area where the Division believes the exchange should improve its compliance program. The Division is conducting a separate review of the Exchanges’ procedures relating to Exchange for Related Positions.

 The Division found that the Exchanges maintain experienced market surveillance staff and an adequate market surveillance program to demonstrate compliance with Core Principles 2, 4 and 5. The Division did not identify any deficiencies but made one recommendation—that the Exchanges should consider implementing a formal review process by which the market surveillance department can verify that a market participant, who has a position larger than a position limit is, in fact, making use of an exemption, consistent with the strategy described in their exemption application.

 To see the full report, click here.