Nasdaq Futures, Inc. has been hit with a $22 million penalty by the Commodity Futures Trading Commission (CFTC) for failing to disclose a key element of its incentive program that impacted payments to certain participants. The violations occurred during the firm’s operation as a designated contract market (DCM) between July 2015 and July 2018.
Unreported Volume-Based Payments
Nasdaq Futures had introduced an incentive scheme known as the DMM program, which publicly stated a fixed stipend for market makers. However, the company did not reveal that payments were also influenced by a volume-based component, which was a significant part of the program. This omission violated the Commodity Exchange Act (CEA) and CFTC regulations, as Nasdaq Futures did not disclose this component to either the CFTC or the public.
The CFTC’s investigation uncovered that not only were these volume-based payments concealed, but Nasdaq Futures also provided misleading information during inquiries. Despite clear evidence of its existence, company representatives denied the presence of the volume-based component when questioned.
This lack of transparency breached the core principles required for DCMs, which include providing accurate information and complying with regulatory obligations.
Failure to Address Regulatory Concerns
In addition to these infractions, Nasdaq Futures reportedly ignored recommendations from its regulatory service provider to rectify specific trading practices. The company also failed to document these decisions, further contributing to the penalties imposed by the CFTC.
Commenting on the case, Ian McGinley, Director of Enforcement at the CFTC, emphasized the importance of accurate reporting by CFTC-designated exchanges. He stated, “The integrity of our oversight relies on exchanges providing truthful and complete information to the CFTC and market participants. Nasdaq Futures, Inc.’s actions constitute serious violations of this responsibility.”
Larger Context of CFTC Enforcement
This enforcement action against Nasdaq Futures follows another significant ruling where the CFTC secured a $12.7 billion judgment against FTX and Alameda Research. This case, one of the largest financial recoveries in the CFTC’s history, involved the misappropriation of customer funds, including digital assets like Bitcoin and Ether. The funds are intended to be used to compensate victims of fraudulent activities associated with the bankrupt crypto exchange.
