BMO Nesbitt Burns Inc. is paying $535,000 in a settlement with the Bourse de Montréal Inc.’s (MX) regulatory division to resolve allegations that it breached several provisions of the exchange’s trading rules.
The largest portion of the sanctions, a $470,000 fine, was attributed to an alleged episode of manipulative trading on March 20, 2019 — when a BMO trader allegedly entered multiple sell orders in five-year government bond futures at the close of the trading day, which drove down prices and benefited its short position.
“Considering that [BMO] held the vast majority of the short open interest, its former trader knew or should have known that his orders would influence the price and that the [firm’s] inventory would benefit if the price of the contracts closed as low as possible,” the settlement noted.
That episode led to a complaint about “potential manipulation” in the contract, which prompted an investigation by the exchange that wasn’t concluded until January 2023, ultimately resulting in a disciplinary complaint against the firm, and this settlement.
Under the settlement, BMO was fined $400,000 for the trading violation itself — reflecting the market impact of the improper trading, which was assessed at $385,900 — and another $70,000 for failing to ensure that its employees complied with the trading rules.
The firm was also fined $40,000 for breaching the rules between March 2019 and Aug. 16, 2022 by providing access to the exchange’s electronic trading system to an employee that wasn’t approved by the bourse.
It admitted to violating the exchange’s rules regarding trading at the close, its supervisory responsibilities for detecting potentially manipulative trading, and the rules regarding access to the exchange’s electronic trading system.
The firm also agreed to pay $25,000 toward the costs of the investigation.
According to the settlement, in the wake of the investigation, BMO beefed up its trade surveillance procedures — adding an additional review around the expiration of futures contracts and took measures to ensure that its employees follow its procedures in this area.