The CFTC has levied a significant $22m fine against Nasdaq Futures, highlighting a serious breach in regulatory compliance.
According to Finextra, formerly recognised as a designated contract market (DCM), Nasdaq Futures was found to have inadequately monitored and enforced rules pertaining to a trader incentive program, which it partially concealed from the CFTC and the public.
According to the CFTC’s findings, from July 2015 to July 2018, Nasdaq Futures engaged in offering its “Designated Market Maker” (DMM) program, which was meant to provide a fixed monthly stipend to market makers. However, the company also rewarded some participants based on the volume of contracts they traded—a detail not disclosed as per the requirements of the Commodity Exchange Act (CEA) and Commission Regulations. This undisclosed volume-based incentive led to significant discrepancies in what was reported to the CFTC, where Nasdaq Futures denied the existence of such incentives.
This act of non-disclosure and the provision of false information to the CFTC constituted a breach of several Core Principles that are crucial for the integrity of CFTC-designated exchanges. Moreover, Nasdaq Futures failed to consult with three participants of the DMM program regarding suspicious trading activities as recommended by its regulatory service provider, further flouting CFTC regulations.
CFTC Director of Enforcement Ian McGinley stressed the importance of transparency and adherence to statutory Core Principles by CFTC-designated exchanges. “Nasdaq Futures, Inc.’s conduct here represents significant violations of both its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges,” he noted.
The fine imposed serves as a stern reminder to all regulated entities about the critical nature of full compliance with disclosure requirements to ensure market transparency and maintain investor trust.
The CFTC also acknowledged the collaboration of the National Futures Association in addressing this matter, underscoring the collaborative efforts necessary to uphold market integrity.
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