The Commodity Futures Trading Commission (CFTC) has imposed a $22 million fine on Nasdaq Futures, Inc., formerly a designated contract market (DCM), for significant regulatory breaches involving its incentive programs.

According to a statement by the commission, from July 2015 to July 2018, Nasdaq Futures operated as a DCM focusing on energy futures contracts. During this period, the firm implemented an incentive program known as the DMM program.

Volume-Based Payments

While Nasdaq Futures publicly reported a fixed stipend for market makers, it failed to disclose a volume-based component that influenced payments to select participants. This component was never revealed to the CFTC CFTC The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss The 1974 Commodity Exchange Act (CEA) in the United States created the Commodity Futures Trading Commission (CFTC). The Commission protects and regulates market activities against manipulation, fraud, and abuse trade practices and promotes fairness in futures contracts. The CEA also included the Sad-Johnson Agreement, which defined the authority and responsibilities for the monitoring of financial contracts between the Commodity Futures Trading Commission and the Securities and Exchange Commiss Read this Term or the public, as required by the Commodity Exchange Act and CFTC regulations.

The CFTC's investigation uncovered that Nasdaq Futures not only omitted crucial details about the volume-based payments but also provided false information when questioned. Company representatives denied the existence of the volume-based component despite clear evidence of its role in the incentive program.

This misrepresentation reportedly violated the CEA's core principles for DCMs, which mandate accurate disclosure and adherence to regulatory requirements.

Commenting on the enforcement action, CFTC's Director of Enforcement Ian McGinley said: “The CFTC's oversight regime depends upon CFTC-designated exchanges providing the CFTC and market participants accurate information. Nasdaq Futures, Inc.'s conduct here represents significant violations of its duty to provide such information and several statutory Core Principles applicable to CFTC-designated exchanges.”

Alleged Non-Compliance with CFTC Regulations

Further compounding the issue, Nasdaq Futures ignored recommendations from its regulatory service provider to address specific trading activities and failed to document these decisions. This non-compliance with CFTC regulations contributed to the overall penalty imposed.

In a separate incident, the CFTC secured a $12.7 billion judgment against FTX and Alameda Research. According to the regulator, these funds will reportedly be used to compensate the victims of fraudulent activities in the bankrupt crypto exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectiv Read this Term.

This ruling by the US District Court for the Southern District of New York marked the largest financial recovery in the CFTC's history. The order requires FTX to pay $12.7 billion in monetary relief, which includes $8.7 billion in restitution to customers and $4 billion in disgorgement.

The judgment highlighted the seriousness of FTX's actions, where customer funds, including digital assets like Bitcoin and Ether, were commingled and misappropriated.