New York, NY – The Commodity Futures Trading Commission (CFTC) has levied a $6.5 million penalty against CX Futures Exchange, L.P. (CX) for multiple violations of regulations concerning system safeguards, swap and option reporting, and providing false statements to the agency. The settlement, finalized on September 29, 2022, includes a cease and desist order and requirements for CX to back-report all previously unreported data.
The CFTC investigation revealed that between September 2017 and August 2021, CX failed to adequately maintain its system safeguards, a critical component of protecting financial market security. Specific failures included a lack of controls testing, insufficient penetration testing, inadequate enterprise technology risk assessments (ETRA), and a failure to review those assessments at the board level. CX also failed to promptly notify the CFTC of planned changes to its automated systems that could impact security.
Furthermore, the CFTC found that CX failed to report data for over 200,000 options transactions – primarily weather-related binary and pari-mutuel options – between November 2017 and June 2020, violating options reporting regulations. A similar failure to report swap data for the same transactions occurred between November 2017 and August 2022, breaching swap reporting regulations. This data should have been submitted to a swap data repository (SDR).
The order also details that in 2017, CX falsely represented to CFTC staff that it was compliant with options reporting regulations as part of a request for a no-action letter concerning SDR reporting. The company knew, or should have known, that this statement was inaccurate and did not begin reporting the data to the CFTC until approximately June 2020.
The CFTC acknowledged CX’s substantial cooperation throughout the investigation, resulting in a reduced civil monetary penalty. Acting Director of Enforcement Gretchen Lowe emphasized the importance of system safeguard regulations in maintaining market security and the CFTC’s commitment to enforcing those rules.
The investigation was led by Trevor Kokal, John C. Murphy, Alejandra de Urioste, David W. MacGregor, Lenel Hickson Jr., and Manal M. Sultan of the Division of Enforcement, with assistance from staff within the Divisions of Market Oversight and Data.
Source: CFTC.gov
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