The Commodity Futures Trading Commission (CFTC) has imposed a $22 million fine on Nasdaq Futures for breaching Core Principles related to market conduct and transparency. The penalty follows allegations that Nasdaq Futures failed to properly establish, monitor, and enforce rules concerning an incentive program offered to traders on its designated contract market (DCM).
According to the CFTC’s press release, Nasdaq Futures did not adequately disclose the details of its incentive program to the CFTC or the public, in violation of the Commodity Exchange Act (CEA) and Commission Regulations. The firm was also found to have made misleading statements to the CFTC regarding the program.
The $22 million civil monetary penalty reflects the CFTC’s determination that Nasdaq Futures’ actions constituted significant violations of its obligations under the Core Principles governing CFTC-designated exchanges.
Background of Nasdaq Futures’ Violations
From July 2015 to 2018, Nasdaq Futures operated a market for energy commodity futures contracts and implemented various incentive programs for traders, including its Designated Market Maker (DMM) program. Officially, the DMM program offered a fixed monthly stipend to market makers. However, the firm also provided additional payments to select participants based on their trading volume—a component that was not disclosed to the CFTC or the public.
The omission of this volume-based incentive led to multiple breaches of DCM Core Principles as required by the CEA. Nasdaq Futures failed to follow its regulatory service provider’s advice to address concerns with three DMM program participants about their trading activities. Additionally, the company did not document its reasons for disregarding these recommendations, further violating CFTC regulations.
The CFTC’s action underscores the critical importance of transparency and adherence to regulatory standards in maintaining market integrity and protecting participants.
