NOTICE OF DISCIPLINARY ACTION

MEMBER:

Aardvark Trading LLC

CBOT RULE VIOLATIONS:

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 a bona fide market position exposed to market risk (transactions commonly known or referred to as 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 CME GROUP RA1411-5RR Wash Trades Prohibited (in relevant part)

Q11- Under what circumstances does trading opposite one’s own order on the electronic platform violate Rule 534?

A11- It is a violation of Rule 534 for an individual to enter an order on the electronic platform that the individual knew or reasonably should have known would trade against his own order resting on the opposite side of the market. The unintentional and incidental matching of buy and sell orders entered by an individual trader on the electronic platform generally will not be considered a violation of Rule 534. However, if such self-matching occurs on more than an incidental basis in the context of the trader’s activity or in the context of the particular market’s activity, such trades may be deemed to violate the prohibition on wash trades. It is recommended that individual traders who frequently enter orders on opposing sides of the market that have a tendency to self-match on more than an incidental basis employ functionality that will minimize the potential for their buy and sell orders to match with each other.

Q13- Is it a violation of Rule 534 if orders initiated by one or more automated trading systems that are operated and/or controlled by the same individual or the same trading group match against each other?

A13- (in part) If a particular algorithm generates buy and sell orders that would potentially match against each other and such trades occur on more than an incidental basis in the context of the algorithm’s activity or in the context of the particular market’s activity, the trades may be deemed to violate the prohibition on wash trades. It is recommended in this circumstance that the party(ies) responsible for the operation of the algorithm employ functionality that will minimize the potential for the algorithm’s buy and sell orders to match with each other.

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.

FINDINGS:

Pursuant to an offer of settlement in which Aardvark Trading LLC (“Aardvark”) neither admitted nor denied the rule violations upon which the penalty is based, on October 25, 2016, a Panel of the Chicago Board of Trade (“CBOT”) Business Conduct Committee (“BCC” or “Panel”) found that Aardvark was subject to the BCC’s jurisdiction pursuant to Rules 400 and 402. The Panel also found that on trade date July 6, 2015, an error in the configuration of an automated trading system (“ATS”) operated by Aardvark resulted in the system executing numerous self-matched trades in the September 2015 Two-Year futures contract in one Aardvark account. The self-matched transactions caused price and volume aberrations in the September 2015 Two-Year futures contract. The Panel further found that Aardvark knew or should have known that orders entered by the ATS would match and that the firm failed to employ effective functionality designed to minimize the self-matches. Additionally, the Panel found that although the ATS automatically shut down due to the number of orders filled, Aardvark re-employed the ATS in the market without having identified or adjusted the ATS’s configuration. The Panel thus concluded that Aardvark thereby violated CBOT Rules 534, 432.Q, and 432.W.

PENALTY:

In accordance with the settlement offer, the Panel ordered Aardvark to pay a fine of $40,000.

EFFECTIVE DATE:

October 27, 2016