CFTC imposes USD 22 million fine on Nasdaq Futures for Core Principle breaches

Operating as a market for energy commodity futures contracts from July 2015 to 2018, Nasdaq Futures provided several incentive programs to certain traders on its contract market, including its Designated Market Maker (DMM) program. As released to both the CFTC and the public, the DMM program paid a fixed monthly stipend to market makers, though, the company also conducted payments to a select number of participants that were based on the volume of contracts they traded. Despite being required by the CEA and associated regulations, this volume-based component was not revealed to the CFTC, with the company omitting or explicitly denying the existence of this incentive as part of the DMM program.

Moreover, Nasdaq Futures’ exclusion regarding the volume-based component of the DMM program to the CFTC, the public, its compliance staff, and regulatory service provider led to breaches in numerous DCM Core Principles required in the CEA.  Additionally, the company did not follow its regulatory service provider’s recommendations to contact three DMM program participants about their trading activity nor documented its reason for not doing so, which violated CFTC regulations.