TRADE SURVEILLANCE UNIT - MONITORING REPORT

Trade Surveillance Unit - Monitoring Report



Trade Surveillance Unit - Monitoring Report

Introduction- Purpose and Scope

        The Division of Trading and Markets ("Division") has accomplished a limited-scope direct enforcement reconsider of the market surveillance program of the COMEX partition ("COMEX" or "Exchange") of the New York Mercantile Exchange ("NYMEX"). The reason of this reconsider was to assess COMEX's market surveillance direct enforcement program for compliance with Section 5a(a)(8) of the Commodity Exchange Act ("Act") and Commission Regulation 1.51(a)(1).1 This reconsider wrappings the time span from January 1, 2006 to January 1, 2007 ("target period").

 

Findings:

The CMS system triggered a parking*(2) alert in the 2nd week of September. Further enquiries have been made to establish the booking process used between a trader (Mr. Patel) and a broker (GFI).

The trading activity involved bond: GROHE HOLDING FRN 15/01/14 EUR.

*(1) CMS London Trading Surveillance System used for Fixed Income Products.

*(2) Market Abuse behaviour: This report is designed to detect patterns of linked purchase and sale transactions with the same counter party in which there is no real transfer of market risk/benefit of ownership. See the CMS dictionary for the definition.

*(3) Mr. Amit Patel is the director, High Yield Trader.

Analysis/Order of Events:

1.Analysis of the trade data revealed the following:

A: Analysis of the alert:

The analysis of the alert*(4) revealed that Mr. Patel purchased 1000 bonds on 24/09/10 and then the transaction was reversed with the same broker on 29/09/2010 at the same price. As there is a slight pattern here, further investigation is required in order to determine if the trades were linked.

B: Retrieval of data from January 2010:

An historical report regarding the trading activity in this bond was run from the beginning of the year using “Investigative” tools from the CMS. The outcome of this report indicated:

-the trades were not linked

-only Mr. Patel traded in these securities

-a very clear pattern was detected for September 10:

On 24/09/10 Mr. Patel purchased 1000 shares and then the transaction was reversed a few hours later with the same broker. The same behaviour occurred on 29/09/10.

Notably, the price used in the sales (i.e. the latest transaction in the day) was slightly higher compared to the purchases in both instances.

On 24/09/10 and 29/09/10 there was no other trading activity for this security.

-The average quantity for this bond was around: 593

-On 24/09/10 and 29/09/10 there was no other trading activity for this bond

Given that these trades were carried out by the same trader and by the same broker with no external interference, that the transaction was reversed one day later, that the price of the 2nd execution (24/09/2010) was slightly higher, which does not make economic sense (it would have been a loss for the client), and that the same quantity was traded, these trades can potentially indicate Parking Fixed Income behaviour.

Discussion with the trader, Mr. Patel, for clarification of the trading strategy.

An interview was conducted with the trader, Mr. Patel, on 05/10/10 at 17:30 p.m. in order to clarify the booking process and ...