CME sued over leaks of confidential trade information
BY DAVID ROEDER Business Reporter firstname.lastname@example.org February 21, 2013 5:24PM
Updated: March 23, 2013 6:36AM
In a stinging new allegation over the integrity of the futures markets, federal regulators Thursday sued CME Group Inc. and two former employees over leaks of confidential trading information to an outside broker.
The suit by the Commodity Futures Trading Commission involves activity on the New York Mercantile Exchange covering 2008 to 2010. The exchange, known as Nymex, became part of Chicago-based CME in 2008.
The agency accused former employees William Byrnes and Christopher Curtin, both New York residents, of funneling to a favored broker nonpublic information such as the identity of parties involved in particular trades, the brokers involved and the trading strategies that applied. They had access to the information as employees of the CME ClearPort processing system and are accused of violating federal law and CFTC rules.
In an unusual turn, the CFTC named CME’s Nymex unit in the same suit, alleging it is responsible for the employees’ wrongdoing. The charge comes as the CME-owned futures markets, including the Chicago Board of Trade and the Chicago Mercantile Exchange, are spending heavily to promote market integrity following two high-profile cases of broker shutdowns and lost customer money.
CME Group quickly issued a strongly worded statement denying the CFTC charges and insisting the leaked information did not influence the markets. CME said the former workers were helping a broker get business leads, not manipulate trading, and that it fired them as soon as it learned of the “improper activities.”
However, the CFTC’s suit said a complaint against Byrnes was first lodged in 2009 and that CME never followed up. It even promoted him to train others in policies on ethics and confidentiality, the suit said, and didn’t fire him until another complaint was made in 2010.
The suit also said Curtin quit the exchange voluntarily in 2009. The two defendants could not be reached for comment and a CME spokesman declined to go beyond a public statement.
“The CFTC court action announced today is disappointing because it relates to incidents that CME Group has already addressed and handled appropriately, and involved no harm to any customer or the markets,” the statement said.
It added that “we took swift action to make clear our commitment to protecting the confidentiality of any information concerning our customers. We also reinforced procedures and practices to protect against and detect such misconduct in the future.”
Nymex is best known for its trading in oil, natural gas and precious metals.
CME has said some declines in futures trading may be attributable to a lack of trust. The bankruptcy of major brokerage MF Global and fraud at Peregrine Financial Group Inc. have left customers scrambling to recoup funds.
The CFTC filed its suit in the Southern District of New York and asked from each defendant penalties of at least $130,000 per incident. Its complaint alleged Byrnes and Curtin helped the broker at least 76 times.