The U.S. Commodity Futures Trading Commission (CFTC) on Monday said it had simultaneously filed and settled charges against Intercontinental Exchange's ICE Futures U.S. Inc. to the tune of $3 million for "submitting inaccurate and incomplete reports and data" for certain energy contracts and other commodities over at least a 20-month period, from at least October 2012 through at least May 2014.
According to the CFTC order, on every reporting day during the period in question, ICE Futures U.S. submitted reports and data containing errors and omissions, with cumulative inaccuracies totaling in the thousands. The order further found that CFTC staff repeatedly notified ICE Futures U.S. of the problems with its reports and data and requested that ICE take action to correct the mistakes, but that ICE Futures U.S. continued to submit inaccurate reports and data. The order requires ICE Futures U.S. to pay a $3 million civil monetary penalty and to comply with undertakings aimed at improving its regulatory reporting.
"The CFTC cannot carry out its vital mission of protecting market participants and ensuring market integrity without correct and complete reporting by registrants, including DCMs [designated contract markets]," CFTC Director of Enforcement Aitan Goelman said. "Today’s action makes clear that registrants who fail to meet their reporting obligations will be held accountable and that the CFTC takes a particularly dim view of reporting violations that continue over many months, especially after CFTC staff has repeatedly alerted the registrant in question to the problems in its reporting."
According to ICE Futures U.S., these errors and omissions resulted primarily from technology upgrades and data migration projects, and while they affected data provided to the Commission, they did not affect data published by ICE Futures U.S. on its website. The Commission allowed that from October 2012 and continuing until April 2013, ICE Futures U.S. was engaged in significant technology upgrades related to the Commission's then-upcoming requirement of a new data-reporting format and ICE Futures U.S.'s own transition of existing over-the-counter energy swaps into listed energy futures. These projects involved migrating data from ICE Futures U.S.'s old reporting system to a new system, and the associated technology upgrades introduced software logic errors that resulted in most of the reporting errors and omissions made by ICE Futures U.S. to the Commission.
The Commission found that many of the inaccurate and incomplete reports made by ICE Futures U.S. occurred after CFTC staff informed ICE Futures U.S. of the reporting problems and requested that the problems be corrected. With respect to permanent record data, ICE Futures U.S. failed to report any data (including delivery notices) for certain expiring futures contracts after the last trading day, and it reported incorrect intraday futures prices, numbers of delivery notices, option strike prices, and volumes for exchanges of futures. The Commission said ICE Futures U.S. also failed to submit clearing member reports for the expiring futures contract after the last trading day, and it failed to submit any transaction-level data on six separate days for certain energy contracts.
In some instances, data was missing, such as trading dates for which the Commission received no reports for ICE Futures U.S.'s energy markets. In other instances, the CFTC said the errors only became apparent when Commission staff discovered discrepancies between the transaction-level data and the summary data reported for certain trading days. The CFTC's staff identified further errors by detecting differences between the data the Commission received and the data ICE Futures U.S. published on its website in its Daily Market Reports. Finally, some errors were apparent on the face of the reported data (e.g., certain natural gas settlement prices in October-November 2012 were reported at 1000 times their actual level).
These reporting errors and omissions included:
Reporting incorrect high/low and open/close options prices in a variety of contracts, including coffee, cocoa, sugar, cotton, frozen concentrated orange juice, and the U.S. dollar index;
Reporting incorrect settlement prices in natural gas options;
Reporting incorrect strike prices or failing to report strike prices in certain natural gas options;
Reporting inaccurate information in currency and cross-rate futures;
Reporting inaccurate delivery notices in numerous contracts, including coffee, cocoa, cotton, and frozen concentrated orange juice;
Reporting inaccurate volumes in exchange for related product trades;
Failing to report any information after the last trading day for certain futures contracts, including clearing member reports for those dates; and
Failing to submit any transaction-level data for certain energy contracts.
The order found that ICE did not respond in a timely and satisfactory manner to inquiries from CFTC staff from multiple divisions about these data-reporting issues, including initial inquiries from the Division of Enforcement. However, the Commission said ICE did eventually cooperate fully with the investigation and took effective corrective actions to address its reporting deficiencies, which the government agency took into account in settling this matter.
In addition to the civil monetary penalty, the CFTC ordered ICE Futures U.S. to comply with undertakings to improve its regulatory reporting. The exchange must create and maintain a new senior position of Chief Data Officer, who will have direct responsibility for systems and procedures relating to regulatory reporting, and must hire and maintain at least three additional quality assurance staff who will be dedicated to regulatory reporting. ICE Futures U.S. also must undertake certain data-reconciliation efforts, including reviewing certain prior data submissions to the CFTC to identify further violations of the charged CFTC Regulations and, beginning 120 days from the date of the order, endeavoring to reconcile data provided to the CFTC with data published on its website, as well as with other data existing within ICE Futures U.S.'s systems and its clearing providers’ systems. Additionally, ICE must correct any errors or omissions in data provided to the CFTC within one week of discovery or notification of the errors or omissions, or, in the event such corrections will take more than a week’s time, reporting to the CFTC why additional time will be necessary.