Securities Regulation Daily Wrap Up, ENFORCEMENT—CFTC fines Nasdaq Futures $22M for failing to disclose incentives and providing misleading information, (Aug 29, 2024)
Commissioner Pham dissented, arguing the action could harm market liquidity and criticizing the CFTC's regulatory approach.
The CFTC ordered Nasdaq Futures, Inc. to pay a $22 million fine for failing to adhere to Core Principles as a designated contract market (DCM). The violations stemmed from Nasdaq Futures, Inc.’s failure to properly establish, monitor, or enforce rules related to an incentive program offered to certain traders. Additionally, the company did not fully disclose the details of this program to the CFTC or the public, as required by the Commodity Exchange Act (CEA) and provided false and misleading information about the program to the CFTC (In the Matter of Nasdaq Futures, Inc., CFTC Docket No. 24-20 (Aug. 28, 2024)).
From 2015 to 2018, Nasdaq Futures, Inc. operated as a DCM focused on energy commodity futures contracts. The company offered various incentive programs, including a "Designated Market Maker" (DMM) program, which provided a fixed monthly stipend to market makers. However, it was found that Nasdaq Futures, Inc. also made undisclosed payments based on trade volumes to select participants in the DMM program. This volume-based component was not reported to the CFTC, and the company’s submissions to the CFTC omitted or denied the existence of such incentives, leading to false and misleading statements during CFTC inquiries.
Commissioner Pham’s dissent. CFTC Commissioner Caroline D. Pham dissented from the order, arguing that the CFTC's action could have negative consequences on market liquidity by discouraging the use of incentive programs. She criticized the CFTC for making assumptions not supported by facts and for targeting legal and compliance professionals who acted in good faith. Pham expressed concern that the settlement reflects a shift in the CFTC’s regulatory approach, making it difficult for exchanges to comply with constantly changing rules.
This is CFTC Docket No. 24-20.
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