NOTICE OF DISCIPLINARY ACTION

MEMBER:

Aardvark Trading LLC

NYMEX 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 RA0913-5 Wash Trades Prohibited (in relevant 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.

Q13- Is it considered a violation of Rule 534 if orders initiated for accounts with common beneficial ownership by one or more automated trading systems match against each other?

A13- If different automated trading algorithms for the same trading entity are operating in the same instrument and potentially may trade with one another, each such algorithm should be identified with a unique operator ID (also called a Tag 50 ID) tied to the individual or team of individuals that operate the system/algorithms. While it is not prohibited to run potentially conflicting algorithms simultaneously, if such trades cause price or volume aberrations, or occur frequently, the trading may be subject to particular scrutiny and may be deemed to violate Rule 534. Market participants are responsible for monitoring their automated trading systems and for employing trading algorithms that minimize the potential for the execution of transactions which are not exposed to market risk.

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 November 1, 2016, a Panel of the New York Mercantile Exchange (“NYMEX”) 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 August 17, 2012, an automated trading system (“ATS”) operated by Aardvark did not operate as intended, resulting in the system executing self-matched calendar spread trades in the Crude Oil contract in one Aardvark account. The Panel found that Aardvark did not fully test the ATS system before redeploying it, resulting in the identical system code not operating as intended on August 23, 2012, which again self-matched trades in an Aardvark account. As a result, price and volume aberrations were created on both sides of the market. The Panel further found that on August 23, 2012, Aardvark knew or should have known that orders it entered would match with resting orders on the other side of the market for an Aardvark account. The Panel concluded that Aardvark thereby violated NYMEX 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.