International derivatives market CME Group has published a notice of disciplinary action against BlackEdge Capital LLC.
According to a settlement offer in which BlackEdge Capital LLC neither admitted nor denied the rule violations or the factual findings on which the penalty is based, a Chicago Mercantile Exchange (CME) Business Conduct Committee panel found that on June 23, 2022, the BlackEdge traded a margin box on options in the three-month SOFR futures market to increase the incentives it would receive as a participant in the SOFR Options Transition Data Incentive Program.
The incentive program distributed financial incentives to participants from a group that increased if average daily product volume reached certain thresholds.
On June 23, 2023, Company A, another participant in the incentive pooling program, contacted BlackEdge via direct message. Company A noted that the volume was just below the higher threshold for the incentive pool and asked if BlackEdge was interested in trading the SOFR. BlackEdge confirmed its interest in negotiating the SOFR and then spoke with Company A over the phone. Shortly after the call, Firm A created a spread on Options for three-month SOFR futures and, the next minute, entered multiple orders to buy the spread. BlackEdge traded against each of these orders and then exited the positions by buying the box from other market participants at the same margin price.
Volume traded in the margin box on June 23, 2022, increased the average daily volume above the higher volume threshold required to maximize the incentive payouts provided by the SOFR Options Transition Incentive Tank Program.
The panel found that BlackEdge received an additional $171,653 in payments from the incentive group as a result of the spread negotiation. The panel concluded that as a result of the above, BlackEdge violated CME Rule 432.B.2.
Under the settlement offer, the panel ordered BlackEdge to pay a $50,000 fine and disgorgement of $171,653.
The effective date of the notice is June 14, 2024.