CME Group, operator of the New York Mercantile Exchange (Nymex), has fined hedge fund Goldfinch Capital Management LP for position limit violations in the natural gas futures market.
CME fined Houston-based Goldfinch $50,000 and ordered it to disgorge the $17,287 in unjust profits that it received from violating position limits for the expiring December 2010 natural gas futures contracts. It also directed the company to cease and desist from other violations in the future.
According to an offer of settlement filed on March 9, Goldfinch held a short position of 1,053 gas futures contracts on Nov. 23, 2010; this was 53 contracts over the exchange's allowed position limit.
This is Goldfinch's third position limit violation within the past two years, according to CME, which declined to comment on the disciplinary action beyond the notice that was posted on its website. Goldfinch also refused to comment.
Regulated exchanges currently have the authority to set position limits on contracts traded on their systems. But in response to the Dodd-Frank Wall Street Reform Act, the Commodity Futures Trading Commission (CFTC) is considering a proposal that would allow it to set strict position limits on trading in commodity markets to avert price speculation.
The CFTC's proposal establishes position limits in two phases for 28 core physical delivery contracts and their economically equivalent swaps. Specifically, it would limit the amount of positions in futures and options contracts and economically equivalent swaps, other than bona fide hedge positions, that may be held by any entity in one of the 28 covered commodities, including crude oil, natural gas, heating oil and gasoline (see Daily GPI, Jan. 25). Comments on the proposal are due at the CFTC by March 28.
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