AVENTIS ASSET MANAGEMENT, LLC
Rule 432. General Offenses
It shall be an offense:
Q. to 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;
W. for a Member to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.
Rule 533. Simultaneous Buy and Sell Orders for Different Beneficial Owners (in relevant part)
On the Globex platform, opposite orders for different beneficial owners that are simultaneously placed by a party with discretion over both accounts may be entered into the Globex platform provided that one order is exposed for a minimum of 5 seconds in the case of futures orders or a minimum of 15 seconds in the case of options orders. An order allowing for price and/or time discretion, if not entered immediately upon receipt, may be knowingly entered opposite another order entered by the same firm only if this other order has been entered immediately upon receipt and has been exposed on the Globex platform for a minimum of 5 seconds for futures orders or a minimum of 15 seconds for options orders.
Pursuant to an offer of settlement that Aventis Asset Management, LLC (“Aventis”) presented at a hearing on September 19, 2012, in which Aventis neither admitted nor denied the rule violations upon which the penalty is based, a Panel of the NYMEX Business Conduct Committee (“Panel”) found that Aventis voluntarily submitted itself to the jurisdiction of the Exchange for purposes of settling this matter and that on August 12, 2011, an automated trading system (“ATS”) Aventis operated malfunctioned, and entered a large number of buy and sell orders into the CME Globex Platform (“Globex”) in the September 2011 Crude Oil (“SEP11 Crude”) contract at the same price during a ten minute period between 3:20 AM and 3:30 AM (CT). By virtue of the malfunction, the ATS executed more than 13,000 trades, 90% of which were executed at a price of 85.17, for the two accounts. More than 7000 of these trades were executed with the same account on both sides of the trade and although the same-side-of-the-market orders for the two accounts had been entered at the same time, more than 5000 orders were executed between the two accounts. With respect to 862 of the trades executed between the two accounts, the buy and sell orders were entered into Globex less than five seconds apart. This level of trading caused a volume spike in the SEP11 Crude market, which gave the impression of substantial competitive buying and selling in the open market over a ten minute period. It also caused the price of SEP11 Crude to remain essentially unchanged during the ten-minute period.
The Panel also found that the risk control feature designed to prevent the ATS from generating more than one order every ten minutes was inadvertently eliminated due to a coding error that occurred during a March 2011 upgrade of the system. This coding error did not cause any unintended orders until August 12, 2011. Under the market conditions existing at 3:20 AM (CT) on August 12, 2011, this coding error resulted in continuous entry of buy and sell orders that flipped the long and short positions of the two accounts being traded. The buy orders ceased when the accounts reached their position limits and the sell orders ceased after the resting orders were completely filled approximately 90 minutes later. No new orders were generated by the ATS after 3:30 AM (CT).
The Panel further found that Aventis did not conduct sufficient testing after the upgrade in March 2011 to reveal the coding error before the ATS was placed back into a live trading environment. Additionally, Aventis had insufficient monitoring systems to stop the trading activity described above. Specifically, there was no human presence during times when the ATS was running in the overnight hours and the electronic monitoring system was configured to send real-time alerts in a limited number of circumstances and to send silent emails in other circumstances. For example, the rejection of buy orders after the position limit was hit resulted in a silent email message rather than a real-time alert to Aventis. As the trading was taking place during non-business hours, it took Aventis several hours to learn of the trading and the malfunction and to shut down the system. Aventis has not resumed any ATS trading since August 12, 2011.
Immediately after this incident, Aventis worked with the Exchange to ensure that its customers did not suffer any loss due to the ATS malfunction.
The Panel found that as a result of the foregoing, Aventis violated NYMEX Rules 432.Q., 432.W. and 533.
In accordance with the settlement offer, the Panel ordered Aventis to pay a fine to the Exchange in the amount of $150,000.
September 21, 2012