IMC Chicago, LLC agreed to pay a fine of US $30,000 to resolve a disciplinary action brought by ICE Futures U.S. The exchange claimed that on “numerous occasions” between January 2016 and March 2017, the firm’s automated trading system successively entered orders in Cotton No. 2, Russell Complex and MSCI Complex futures, and then in response to such orders, immediately deleted them and entered new orders because of a “feedback loop.” IFUS said that, under the duty of supervision (click here to access IFUS Rule 4.01), IMC had an obligation to monitor such transactions, which IFUS implied the firm did not. In agreeing to the sanction, IMC neither admitted nor denied the rule violation.
Separately, Marex Financial, Limited, was charged with market disruption and failure to supervise in connection with the trading of an employee, Jake Wiltshire. Mr. Wiltshire was separately charged with market disruption.
According to IFUS, from May through October 2016, Mr. Wiltshire, trading for Marex and himself pursuant to a profit‑sharing arrangement, manually entered large orders on one side of the cocoa futures market to induce executions of smaller quantity orders on the other side. After the smaller orders were executed, Mr. Wiltshire cancelled the larger orders. Marex settled the IFUS disciplinary action by agreeing to pay a fine of US $25,000 and disgorging profits of more than US $9,000. Mr. Wiltshire settled his disciplinary action by agreeing to a 360‑day IFUS trading suspension.
In accepting Marex’s settlement, IFUS noted that after it alerted Marex regarding the employee’s conduct, the firm immediately terminated the employee and disciplined his supervisor. IFUS noted, however, that a monitoring tool used by Marex was not activated for cocoa markets during the relevant time.
Additionally, Peace River Citrus Products and R. William Becker agreed to pay a fine of US $7,500 to resolve charges by IFUS that they executed wash sales purportedly to move positions between firm accounts. Similarly, Chenwei Zhu, was ordered by a business conduct committee of the Chicago Mercantile Exchange to pay a fine of US $25,000, disgorge profits of over US $19,000, and serve a 35-business day suspension on all CME Group exchanges, related to trading to transfer equity between accounts. The BCC held that such trading was pre-arranged in violation of a CME rule prohibiting such conduct (click here to access CME Group Rule 432.G).
Compliance Weeds: Under the relevant IFUS rule (Rule 4.01), the duty of a person to “diligently supervise” its employees and agents applies to “every person” whether a member or not. Moreover, “agent” expressly includes “any Exchange-related activities associated with automated trading systems that generate, submit and/or cancel messages without human intervention.”
The parallel CME Group rule is not as explicit on its face. However, in a Market Regulation Advisory Notice entitled Supervisory Obligations for Employees, CME Group notes that, under its parallel rule, agents include not only natural persons, but “any automated trading systems … operated by any party.” (click here to access MRAN RA1517-5; click here to access CME Group Rule 432.W),