CFTC ACTION: Scotia Capital Inc.

The CFTC issued an order filing and simultaneously settling charges against Scotia Capital Inc., for prearranging trades in the natural gas futures contract on the New York Mercantile Exchange (NYMEX) during November and December of 2006.

The CFTC order imposes a $250,000 civil monetary penalty on SCI, an investment dealer in Toronto, Ontario, Canada and a wholly owned subsidiary of The Bank of Nova Scotia. Additionally, SCI was ordered to cease and desist from future violations of the Commodity Exchange Act.

On one or more occasions in November and December 2006, SCI prearranged natural gas futures trades on the NYMEX for its customers, according to the order. The trades were part of a strategy involving the purchase and sale of the same quantity of NYMEX natural gas futures contracts by one customer and the opposite sale and purchase of the same quantity of NYMEX natural gas futures contracts by the other customer, according to the order.

Prior to the trades being entered on the NYMEX, SCI employees arranged for the trades to be executed with a minimal price difference between long and short positions by seeking trades such that there was no more than a half a cent price differential between the buy and sell orders. These prearranged trades negated market risk and price competition and constituted fictitious sales and non competitive transactions, according to the order.

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