Three firms were sanctioned by the CME Group related to breakdowns in their automated trading systems. 303 Proprietary Trading, LLC, agreed to pay a fine of US $75,000 related to excessive messages sent by its proprietary trading system during two seconds on May 8, 2013. According to CME, 303’s system failure resulted in over 27,000 resend messages, CME’s initiation of a port closure and the failure of a Globex gateway. Also, “the excessive messaging affected up to 437 separate customer sessions, causing the cancellation of approximately two thousand orders, and resulted in the loss of customer priority.” CME claimed that 303’s failure was cause by its failure to conduct sufficient testing or simulation on its ATS “to ensure its suitability for sending administrative messages on Globex.” Likewise, Allston Trading LLC was fined US $35,000 because its ATS entered an “excessive number of order and cancellation messages” during one hour on October 23, 2012. According to the CME, “[t]his repetitive pattern of order entry and cancellation occurred after a software failure which caused one of Allston’s several safeguards against excessive messaging to not function as intended.” Finally, Traditum Group LLC was sanctioned US $35,000 because of the failure of an ATS purchased from a third-party vendor that malfunctioned and caused 3,540 one-lot round turn transactions in December Canadian dollar futures contracts during approximately two minutes on November 10, 2011. This represented, said CME, “a significant volume spike in Canadian Dollar during this time period.”

Helpful to Getting the Business Done: Each of the respondents in these matters was charged for its system breakdown with violating the CME Group general prohibition against committing acts detrimental to the interest or welfare of the exchange and, in one case, failure to supervise too. Although CME Group and ICE Futures U.S. have some specific requirements regarding ATS (e.g., electronic audit trail requirements: click here to access the relevant CME Group MRAN, and identification of Globex operators: clickhere to access a relevant CME Group publication), most of the best guidance is voluntary, with some issued by the Principal Traders Group of the Futures Industry Association (e.g., “Recommendations for Risk Controls for Trading Firms:” click here to access, and “Software Development and Change Management Recommendations:” click here to access). However, adherence to the voluntary standards might help trading firms avoid ATS breakdowns and adverse financial consequences, including exchange and other regulator fines.