CHICAGO (Nov 25): CME Group's efforts to police its exchanges, which are some of the biggest in the world, should be improved, according to its primary regulator.

Although CME generally meets its surveillance obligations, shortcomings include taking too long to finish probes, having insufficient investigators and imposing penalties that are too small, the Commodity Futures Trading Commission said today.

Two of CME’s markets, Nymex and Comex, need to keep developing ways of detecting a form of manipulation known as spoofing, the CFTC said in a statement on its website.

Because they are self-regulatory organizations, exchanges such as CME’s have a role in rooting out problematic behaviour on their markets, even though they are also overseen by a government entity.

That makes CME responsible for monitoring some of the world’s busiest markets, where traders can buy and sell futures contracts tied to oil, stock benchmarks like the Standard & Poor’s 500 Index, and interest rates.

“The CFTC said to these guys, ‘Hey, you need to speed things up,’” said John Lothian, a Chicago-based futures professional who publishes industry newsletters.

“They didn’t say, ‘There’s major material deficiencies.’” Still, the list of shortcomings “is rather long,” he added.

“We appreciate the Commission’s review,” Laurie Bischel, a CME spokeswoman, said in an e-mail. “A number of the items noted in its reports have already been addressed and remediated, and we are continuing to review the Commission’s findings.”

'Time delays'
According to the CFTC, Nymex and Comex “must complete investigations in one year or less, absent mitigating circumstances.”

Those markets need a system to “identify the source of time delays,” the agency said.

Four of the company’s markets -- the Chicago Board of Trade, Chicago Mercantile Exchange, Comex and Nymex -- “should take appropriate measures to ensure that internal deliberations do not interfere with the prompt resolution of disciplinary matters,” according to the CFTC.

Additionally, the CBOT and CME “must ensure that their program for reviewing front-end audit trail data is effective and the reviews are conducted in a timely manner,” the regulator said.

Also, fines for traders who don’t have sufficient data on their trading must be “meaningful” and “sufficient to deter recidivist behaviour,” the CFTC said.