CME Group resolved a disciplinary action against TradeForecaster Global Markets over the alleged failure of one of TradeForecaster’s employees that caused the firm’s automated trading system to malfunction on January 20, 2015, and purportedly cause an artificial spike in the price of the June 15 – December 15 Crude Oil futures spread traded on the New York Mercantile Exchange. According to CME Group, on the relevant date, the employee allegedly failed to disengage one ATS that used an auto-spreader strategy prior to engaging a second ATS that was not designed to run at the same time. As a result, said CME Group, the two ATSs improperly interacted with each other causing continuous purchases by the auto-spreader program. TradeForecaster agreed to pay a fine of US $115,000 to resolve this matter.
My View: The comment period for proposed Regulation Automated Trading by the Commodity Futures Trading Commission has now closed, and staff is in the process of evaluating the many divergent views that were submitted and likely developing one or more final rules, potentially by as soon as year-end. Proposed Regulation AT has many prescriptive requirements (CME Group calculates 87) for persons within its scope, including rules related to utilizing mandatory pre-trade risk filters; the development, testing and monitoring of so-called algorithmic trading systems; the retention and production of source code; and the filing with designated contract markets of annual certified reports. (Click here for a detailed oversight of the requirements of proposed Regulation AT in the article, “CFTC’s Proposed New Algorithmic Trading Rules Augur Potential Increased Obligations and Costs, and a New Registration Requirement” in the November 29, 2015 edition of Between Bridges) However, nothing in the proposed rules would likely have prevented the type of alleged error at issue in the instant matter – plain old human mistake. Somewhat ironic!