Interactive Brokers LLC
CME RULE VIOLATIONS:
Rule 575: Disruptive Practices Prohibited
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.
Rule 432 General Offenses
Q. It shall be an offense 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. It shall be an offense for any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.
Pursuant to an offer of settlement in which Interactive Brokers LLC (“IB”) neither admitted nor denied the rule violations upon which the penalty is based, on September 23, 2020, a Panel of the Chicago Mercantile Exchange Business Conduct Committee (“Panel”) found that IB implemented customer order routing functionality that bypassed CME Group market integrity controls. Specifically, in several cases, this functionality enabled its customer orders to avoid protection points applied to all market orders by CME Group’s Globex platform in reckless disregard for the adverse impact on the market. These protection points are designed to prevent extreme price movements and other market disruptions. By routing customer-initiated orders in this manner on numerous occasions between August 2015 and January 2016, IB caused various Equity and Agricultural markets, including the E-mini Nasdaq-100, E-mini S&P 500, Nikkei/Yen, Live Cattle and Cash-settled Butter futures markets, to experience price, liquidity and trade volume aberrations and Velocity Logic events.
The Panel also found that IB failed to adequately take into consideration market conditions when it used this order routing functionality to automatically liquidate under-margined customer accounts which, on multiple occasions between August 2015 and January 2016, caused those same markets to experience extreme price movements, liquidity and trade volume aberrations, and Velocity Logic events.
The Panel concluded that IB thereby violated CME Rules 575.D., 432.Q. and 432.W.
In accordance with the settlement offer, the Panel ordered IB to pay a total fine of $375,000 in connection with this case and companion cases CBOT 15-0303-BC, NYMEX 15-0303-BC and COMEX 15-0303-BC, with $100,000 apportioned to CME.