Richfield Investments Inc. agreed to pay a fine of US $20,000 to ICE Futures U.S. in connection with “numerous” self-matched trades on December 9, 2012. According to the exchange’s disciplinary notice, the self-matched trades were caused by an “erroneous manual entry” that caused two automated-trading system strategies to trade opposite each other. Richfield was charged with failing to supervise. Unrelatedly, ICE Futures U.S. settled charges with J. Aron and Company related to a violation of the exchange’s spot month speculative position limits on one occasion in 2013. For its settlement, J. Aron agreed to pay a penalty of US $82,064 that included disgorgement of US $62,064.
Compliance Weeds: Although futures exchanges may not have per se rules requiring compliance with best practices in relation to automated trading systems, breakdowns can result in enforcement actions under different theories, such as a failure to properly use an exchange’s trading platform (i.e., CME Rule 432W), committing an act which is detrimental to the interest of an exchange (i.e., CME Rule 432Q) or failure to supervise, as in the Richfield Investments matter. Trading firms should also consider employing exchanges’ self trade prevention functionality whether mandated under certain circumstances (such as on ICE Futures U.S.; for more click here) or not (click here for details on CME Group’s capability).