CME RULE VIOLATIONS:
Rule 432 – GENERAL OFFENSES
It shall be an offense to:
Q. commit an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange.
T. to engage in dishonorable or uncommercial conduct.
Pursuant to an offer of settlement in which Charles Martell (“Martell”), a non-member proprietary trader working for a member firm and subject to the jurisdiction of the Chicago Mercantile Exchange (“CME”) pursuant to CME Rule 400, neither admitted nor denied the findings and conclusions herein, on January 18, 2012, a Panel of the CME Business Conduct Committee (the “Panel”) found that from October 1, 2009 through October 31, 2009, Martell traded index futures, including E-mini NASDAQ 100 Index futures contracts (“Mini -Nasdaq”) over the CME Globex (“Globex”) electronic trading platform. During this period, the Panel found that Martell entered into a trading strategy that misled other market participants, including algorithmic trading strategies employed by other firms, and exploited that deception for Martell’s benefit.
The Panel specifically found that during the subject timeframe, Martell entered into Globex over 3,000 “large” orders consisting of 500 to 1,000 Mini-Nasdaq contracts without the intent to trade those orders. When doing so Martell typically began the trading day flat in his account and thereafter established a long (short) position by rapidly entering a number of aggressive one-lot orders. Once Martell established his long (short) position he then layered the sell (buy) side of the book at various price levels that, if traded, would have completely liquidated his previously established position at a profit. The Panel found that immediately after completing the entry of his liquidating orders, Martell then entered numerous “large” buy (sell) orders consisting of 500 – 1,000 contracts on the same side of the market as his already established long (short) position to induce other market participants to trade.
In determining Martell’s intent to not trade the “large” orders, the Panel took into consideration the exposure time and cancellation rate of Martell’s “large” orders and how close in time his cancelations were to the fills he received on his liquidating orders relative to Martell’s average order size, exposure times and cancellation rates.
The Panel found that in so doing, Martell violated CME Rule 432.T. (to engage in dishonorable or uncommercial conduct) and 432.Q. (to engage in an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange).
Taking into account all the relevant factors, including Martell’s financial condition, the Panel ordered Martell to pay a fine of $80,000 and serve an 18 month bar from 1) applying for, owning, or holding a membership of any exchange owned or controlled by CME Group Inc.; 2) access to all CME Group Inc. trading floors; and 3) direct and indirect access to all electronic trading and clearing platforms owned or controlled by CME Group, including CME Globex. The suspension shall run from January 20, 2012 through and including July 19, 2013.
January 20, 2012
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