ALLSTON TRADING LLC
CME RULE VIOLATIONS:
(Legacy) Rule 534. WASH TRADES PROHIBITED
No person shall place or accept buy and sell orders in the same product and expiration month, and, for a put or call option, the same strike price, where the person knows or reasonably should know that the purpose of the orders is to avoid taking bona fide market position exposed to market risk (transactions commonly known or referred to as wash trades or wash sales). Buy and sell orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violate the prohibition on wash trades. Additionally, no person shall knowingly execute or accommodate the execution of such orders by direct or indirect means.
Market Regulation Advisory Notice RA0913-5 FAQ (in part)
Q11- Under what circumstances is trading with oneself on the electronic platform a violation of exchange rules regarding wash trading?
A11- Rule 534 provides that buy and sell orders for accounts with common beneficial ownership must be entered in good faith for the purpose of making bona fide transactions. Thus, it is a violation of 534 for a market participant to enter an order on the electronic system that he knew or should have known would match with a resting order on the other side of the market for an account with common beneficial ownership. Generally, an unintentional and incidental matching of such buy and sell orders will not be considered a violation of Rule 534. However, active traders who frequently enter orders on opposing sides of the market which may have a tendency to cross are strongly encouraged to employ functionality designed to minimize or eliminate their buy and sell orders from matching with each other.
Pursuant to an offer of settlement in which Allston Trading LLC (“Allston Trading”) neither admitted nor denied the rule violations upon which the penalty is based, on October 20, 2015, a Panel of the CME Business Conduct Committee (“BCC” or “Panel”) found that it had jurisdiction over Allston Trading pursuant to CME Rules 400 and 402 as the conduct occurred while Allston Trading was a CME member. The Panel also found that on multiple dates between April of 2011 and February of 2012, Automated Trading Systems (“ATSs”) that Allston Trading employed executed numerous transactions in multiple Eurodollar futures and E-mini S&P 500 futures contract markets wherein orders for Allston Trading accounts self-matched. The Panel further found that while Allston Trading consistently generated a cancellation request on passive orders in an attempt to avoid self-matches, at times Allston Trading sent a new order on the opposite side of the market while waiting for the requisite order acknowledgment on the passive order, thereby allowing a self-match. The Panel found that although Allston Trading did not design the ATSs to execute self-match transactions, it should have known that the ATS, by submitting a new order on the opposite side of the market without waiting for the cancellation request on the passive order, could result in a self-match. Moreover, the Panel found that the self-match transactions occurred as a result of Allston Trading’s failure to employ functionality adequately designed to minimize self-matches. The Panel concluded that Allston Trading thereby violated CME Rule 534.
In accordance with the settlement offer, the Panel fined Allston Trading $75,000.
October 22, 2015
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