NYMEX: A Promotion After a Customer Complained

The NYMEX CFTC information disclosure settlement required the exchange and two former employees to pay a joint $4 million civil penalty over alleged leaks of confidential trading information to a broker. According to the complaint, customers supplied trade details so the exchange could clear transactions. The Commodity Futures Trading Commission alleged that employees used that access to tell an outside broker who was trading, which side they took and what they paid. According to the complaint, the exchange later promoted the employee a customer had accused of leaking information to a job that included teaching confidentiality.

The CFTC enforcement action concerned alleged disclosures during 2008 through 2010, principally about crude-oil and natural-gas options trading. The consent order made New York Mercantile Exchange answer for the alleged disclosures by its employees on the job.

What Information Was Disclosed?

The consent order describes alleged disclosures of counterparties, whether they bought or sold, whether an option was a call or put, the number of contracts, expiration, strike price and trade price. It ties the employees’ access to those details to their work at NYMEX.

According to the complaint, ClearPort supplied clearing and settlement services for exchange-traded contracts and over-the-counter derivatives. The CFTC complaint describes a trade blotter containing the parties, the submitting broker, each party’s side, price, volume and terms. Employees on the ClearPort Facilitation Desk helped customers resolve problems, reconcile transactions and correct trades entered into the system. Their jobs put the detailed trading records in front of them.

According to the complaint, a trading firm could see its own transactions. A broker’s access was limited to the trades it submitted and its client’s side. Even another trade by the same client fell outside that broker’s view if it went through a different broker. Those restrictions mattered because the blotter connected the market’s activity to particular customers.

The public saw daily volume by contract, according to the complaint. It did not see the names behind that volume, the number of participants, the size and price of individual transactions or the individual traders responsible. Knowing that a contract traded is one thing. Knowing which customer bought it, in what size and at what price gives a broker a different view of the customer’s business.

A Broker Asked Who Bought and Who Sold

The agency alleged at least 60 disclosures by the employee later promoted to supervisor and at least 16 by the other employee. Both allegedly supplied information to the same broker, who was not authorized to receive it.

The complaint’s account of a recorded crude-oil-options conversation shows how specific the requests became. The broker asked for the price, the brokers and the buyer and seller. The employee allegedly supplied the buyer, seller and broker, then the individual trader at the buying firm. The questions worked down from a trade to the people behind it.

The other employee’s words, quoted in the complaint from a recorded conversation, show that confidentiality was already on his mind:

The agency alleged that his disclosures continued. It also alleged that the broker and his employer provided both employees with meals, drinks and entertainment while the disclosures were taking place.

For the employee later promoted, the complaint describes a way around the exchange’s recorded telephone lines: cell phones. The CFTC alleged that the move to cell phones was intended to avoid recording the disclosures. In one recorded exchange, the broker asked whether to call his cell. The employee agreed. In another, the broker pressed him to bring the phone the next day:

The Customer Complaint and the Promotion

NYMEX allegedly received a warning in July 2009 that an employee was passing confidential ClearPort trading information to a brokerage firm. The market participant identified the employee by nickname and supplied the brokerage firm’s name. According to the complaint, the managing director responsible for the desk identified the employee correctly.

The agency alleged that the investigation consisted principally of reviewing some calls and emails from a single day. According to the complaint, NYMEX never questioned the employee. The alleged disclosures continued.

According to the complaint, the exchange then sent desk staff an email requiring business calls to use recorded phones and prohibiting cell-phone use at their desks. That email said nothing about disclosure of confidential information, and employees allegedly continued using cell phones openly. The employee under scrutiny allegedly used his regularly.

The complaint alleges that in July 2010, NYMEX promoted him to a supervisory position that included training other employees on the exchange’s confidentiality policies. We find that alleged sequence extraordinary. A customer identifies a leak, the review barely looks beyond a day’s communications, and the employee becomes a confidentiality trainer. The policy had a teacher. The customer still had a problem.

The complaint describes another customer warning in November 2010: the broker repeatedly proposed trades that appeared tailored to offset that customer’s existing positions, even though he should not have known those positions. The customer worried that its information had escaped and could be used to its financial disadvantage. The complaint says NYMEX terminated the employee the following month. In the complaint’s account, a person outside the exchange recognized the apparent leak through the broker’s proposals.

Why NYMEX Answered for Its Employees

Under the consent order, the disclosures the agency alleged counted as the exchange’s own conduct. The order applied the Commodity Exchange Act and the CFTC’s exchange-employee disclosure rules. It covered private trade data the employees could see because of their jobs and allegedly passed on in breach of their duties.

The complaint also alleged that both employees had signed acknowledgments that they had read and understood the employee handbook. It described confidentiality commitments covering customer identities, positions and trading information. The information came with both restricted access and explicit duties to protect it.

The Commodity Futures Trading Commission said in its settlement announcement that this was its first action charging an exchange under these employee-disclosure prohibitions. The conduct predated the agency’s broader anti-fraud rule adopted in 2011.

The Joint Penalty and the Individual Caps

The August 2020 consent order made NYMEX and the two former employees share the civil penalty. The employee who became a supervisor had his liability capped at $300,000, and the other employee at $200,000. Those caps limit their portions of the shared obligation. The order permanently barred the former employees from trading commodity interests and registering with the CFTC.

Confidential Information Can Be the Misconduct’s Starting Point

The CFTC’s fiscal year 2021 budget request, published in 2020, treats improper disclosure of client trading information, front running and use of confidential information to prearrange trades as forms of market harm. The common concern is entrusted information turned to someone else’s advantage. In the NYMEX action, the conduct at issue was the disclosure through exchange employees’ special access.

In the EOX Holdings case, the appeals court threw out a separate charge about trading against customer orders, but the verdict for leaking customer orders stood. For an insider, that makes the path of the information worth explaining in its own right: who held it, why they had it, and where they sent it.

What Evidence Is Required to Prove Fraud?

In the NYMEX complaint, the evidence connected restricted trade data to the employee who could see it, the confidentiality duty, the recipient and the alleged disclosure. The agency drew on the ClearPort blotter, employee duties, signed acknowledgments, recorded conversations and customer complaints.

The communications and trading records answer different parts of the story. The blotter shows what was available. A call can show what was requested and disclosed. The recipient’s access restrictions explain why receiving it mattered. A customer’s report and the employer’s response show what the institution knew and what happened afterward.

We work with the person who understands those connections. A desk employee may recognize a request outside a broker’s permissions. A customer may recognize a proposal built around positions the broker should not know. Either perspective can explain something the trading data alone would leave unanswered.

The Whistleblower Question for Exchange Insiders

The CFTC brings its own enforcement actions. Its whistleblower program can pay qualifying whistleblowers awards totaling 10 to 30 percent of sanctions collected. Your role and how you obtained the information matter to CFTC whistleblower eligibility, and we assess those questions with you.

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. The International Labour Organization describes that separate program in its 2019 study of whistleblower protections.

You Know Who Could See the Trade

If you saw confidential trade details leave the desk, or a broker knew positions that should have been private, tell our whistleblower experts what you recognized. We connect your knowledge of the trading workflow to the evidence, bring in CFTC whistleblower lawyers who understand exchange information, and stay beside you as we build and pursue your case.