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February 21, 2013

CFTC Charges CME NYMEX, Former Employees with Disclosure of Nonpublic Information

By Lene Powell, J.D.

The CFTC charged the New York Mercantile Exchange, Inc. (CME NYMEX), owned and operated by the CME Group, and two former CME NYMEX employees, William Byrnes and Christopher Curtin, with repeated disclosures of material nonpublic customer information to an outside commodity broker who was not authorized to receive the information. The complaint was filed in the U.S. District Court for the Southern District of New York (CFTC v. Byrnes, February 21, 2013.).

Disclosure. According to the complaint, Byrnes and Curtin worked on the CME ClearPort Facilitation Desk and were responsible for facilitating customer transactions reported for clearing through the CME ClearPort electronic system. The disclosures by Byrnes and Curtin, which took place over a period of two and one-half years, were allegedly made to a commodities broker, "broker X," who was not authorized to receive the information. The complaint stated that the disclosures included a wealth of information: details of recently executed trades, the identities of the parties to specific trades, the buy or sell side of each party to specific trades, the identities of the brokers involved in certain trades, the number of contracts traded, the prices paid, the structure of particular transactions, and the trading strategies of market participants.

The complaint further alleged that in July 2009, a market participant complained to CME NYMEX that it believed nonpublic information had been disclosed to third parties by a CME NYMEX employee named "Billy" (Byrnes' nickname). Allegedly, CME NYMEX and a managing director did investigate, but the investigation consisted mainly of reviewing certain of Byrnes' phone calls and emails from only one day, and they did not question Byrnes concerning the complaint or take any additional steps to determine whether Byrnes had engaged in misconduct.

Moreover, Byrnes' misconduct continued until Byrnes was terminated in December 2010 after another market participant made a similar complaint to CME NYMEX, the complaint stated. In the interim, CME NYMEX allegedly promoted Byrnes and had him train other employees on CME NYMEX's confidentiality policies.

CME Group response. In a prepared response, the CME Group stated that when it learned that NYMEX employees provided information to unauthorized third parties, it immediately terminated the employees and reported the misconduct to the CFTC. The CME said the court action was "disappointing" because it related to incidents that the entity had already addressed and that involved no harm to any customer or the markets.

The CFTC seeks civil monetary penalties, trading and registration bans, and a permanent injunction prohibiting further violations of the federal commodities laws

Companies: CME Group, CME NYMEX

LitigationEnforcement: Derivatives Enforcement

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