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The U.S. Commodity Futures Trading Commission (CFTC) levied a $22 million fine against Nasdaq Futures Inc. (NFX) on Thursday, alleging the now-closed derivatives exchange failed to disclose an incentive program for high-volume traders. The program, which was aimed at market makers, operated during a period when Nasdaq owned NFX.

Alleged Violations Between 2015 and 2018

Nasdaq Futures, or NFX, once functioned as a wholly-owned subsidiary of Nasdaq Inc., specializing in energy commodity futures contracts. In 2020, NFX voluntarily deregistered as a designated contract market, selling off its assets to EEX Group prior to shutting down. However, the CFTC's $22 million fine is based on Nasdaq's ownership period and alleges the exchange violated the Commodity Exchange Act and CFTC regulations between 2015 and 2018.

At the core of the allegations is NFX's failure to inform the CFTC about an incentive program for high-volume traders. This program, the CFTC claims, was meant to enhance liquidity on the platform but was not properly disclosed.

CFTC Enforcement Actions and Responses

Ian McGinley, the CFTC's enforcement director, emphasized the importance of transparency. “The CFTC’s oversight regime depends upon exchanges providing the agency and market participants with accurate information,” he stated, adding that the Nasdaq $22M CFTC fine reinforces the need for regulatory compliance.

Not everyone within the CFTC supported the penalty. Republican Commissioner Caroline Pham dissented from the settlement order, arguing that such incentive programs are not uncommon and are crucial for market liquidity. She expressed concerns that the ruling could dissuade exchanges from employing similar programs.

"I am concerned that the CFTC's anti-competitive speaking order will create confusion and discourage exchanges from maintaining liquid, efficient markets to promote accurate pricing and tight spreads," Pham wrote in a statement.

Nasdaq $22M CFTC Fine : Nasdaq’s Response and Settlement

Nasdaq Futures Inc. chose to settle the case without admitting or denying the allegations. A Nasdaq spokesperson confirmed the settlement and stated, "Nasdaq sold NFX’s futures exchange business in November 2019 and is pleased to resolve this matter in cooperation with the CFTC."

The Nasdaq $22M CFTC fine closes a chapter on a period of regulatory scrutiny for NFX, yet leaves broader questions about how exchanges should disclose their market incentive programs.