The CFTC has reached a settlement with Merrill Lynch Commodities, Inc, asking $350,000 in civil monetary penalty in connection with charges that the company exceeded its position limits for Cotton No. 2 futures on the Intercontinental Exchange U.S. (ICE).

The CFTC alleges that Merrill Lynch held a futures equivalent position in Cotton No. 2 contracts that exceeded the CFTC position limits on ICE between January 31, 2011 and February 3, 2011. The Commission limits positions in Cotton No. 2 to 5,000 contracts in all months and 3,500 in any particular month. At the end of trading on January 31, Merrill Lynch held a net short position of 5,502 contracts, 502 over the all-months limit. On February 1, the company exceeded the limit again by 1,059 all-month contracts. Merrill Lynch also held a net position of 3,727 in March 2011 contracts, 227 over the single-month limit. On February 2, the firm was 357 contracts over the all-months limit, and on February 3 was 327 over the all-months limit.

In the order, the Commission speculates that Merrill Lynch Commodities exceeded position limits for four consecutive days because of an inadequate position limits monitoring system. The system in place failed to alert the commodities trader in charge of managing Cotton No. 2 futures. When notified on February 1 that the firm was holding excessive positions in Cotton No. 2, it took several days for the trader to bring the firm into compliance with the set limits. The order says that the company has cooperated fully with the investigation, and has upgraded and improved its monitoring system.

Read more about this CFTC enforcement action.
photo credit: amberley johanna