CME RULE VIOLATIONS:
Rule 432. General Offenses (in part)
It shall be an offense:
B.2. to engage in conduct or proceedings inconsistent with just and equitable principles of trade;
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 any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange;
Rule 575. Disruptive Trading Practices Prohibited (in part)
D. No person shall enter or cause to be entered an actionable or non-actionable message with intent to disrupt, or with reckless disregard for the adverse impact on, the orderly conduct of trading or the fair execution of transactions.
576. Identification of Globex Terminal Operators
Each Globex terminal operator shall be identified to the Exchange, in the manner prescribed by the Exchange, and shall be subject to Exchange rules. If user IDs are required to be registered with the Exchange, it is the duty of the clearing member to ensure that registration is current and accurate at all times. Each individual must use a unique user ID to access Globex. In no event may a person enter an order or permit the entry of an order by an individual using a user ID other than the individual’s own unique user ID.
Pursuant to an offer of settlement in which theAlgoLab.com Inc. (“AlgoLab”) neither admitted nor denied the rule violations or factual findings upon which the penalty is based, on June 23, 2020, a Panel of the Chicago Mercantile Exchange (“CME”) Business Conduct Committee (“Panel”) found that on multiple occasions between December 1, 2018, and August 1, 2019, an automated trading system (“ATS”) operated by AlgoLab entered numerous orders in Swiss Franc, E-mini NASDAQ, and Euro FX futures markets on Globex to establish positions for customers and its own proprietary trading accounts. AlgoLab customers pay a monthly subscription fee to license the AlgoLab software to enter orders on their behalf in a specific instrument solely based on the decision of the strategy’s underlying logic. The ATS entered market orders to exit those positions without regard to the available quantity in the central limit order book which caused the orders, on occasion, to trade through multiple price levels. The Panel therefore found that AlgoLab violated Rule 575.D. On two occasions, these orders, once executed, triggered other unrelated stop orders resulting in aggressive trading. Due to the significant price movement generated by the ATS’s orders and the stop orders it triggered, Globex temporarily stopped trading in the entire Swiss Franc futures and options product group and the market entered a reserved state. The Panel therefore found AlgoLab violated Rule 432.Q. Additionally, in either failing to properly monitor market liquidity or properly test the ATS, the Panel found that AlgoLab violated Rule 432.W.
Additionally, the ATS, for technical reasons, submitted orders for the proprietary trading account ahead of one or more of its customers’ orders to establish positions. The ATS automatically generated orders to exit those positions and also prioritized the proprietary trading account orders over one or more customer orders. The Panel therefore found that AlgoLab violated Rule 432.B.2. Further, AlgoLab used its customers’ unique user IDs to access Globex and enter orders on behalf of its customers. The Panel therefore found that AlgoLab violated Rule 576.
In accordance with the settlement offer, the Panel ordered AlgoLab to pay a fine of $105,000.