NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CME 09-06562-BC

MEMBER FIRM:

INFINIUM CAPITAL MANAGEMENT

CME RULE VIOLATIONS:

Rule 432.Q. GENERAL OFFENSES – Acts Detrimental

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.

Rule 432.W. General Offenses – Failure to Supervise

It shall be an offense 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 Infinium Capital Management neither admitted nor denied the rule violations upon which the penalty is based, on November 22, 2011, a Panel of the CME Business Conduct Committee (“Panel”) found that on October 28, 2009, beginning at approximately 8:08:30 a.m. CST, an automated trading system (“ATS”) operated by Infinium Capital Management (“Infinium”) malfunctioned. The malfunction initially caused Infinium to enter an order into the CME Globex electronic trading platform to sell 136 December 2009 E-mini Nasdaq 100 Index® futures (“Mini-Nasdaq) contracts at a limit price of 1716.25. Two seconds later, Infinium’s ATS modified the quantity of this order up to 340 contracts and the price down to 1716.00. As Infinium’s ATS continued to modify the quantity of this order up, it also continued to modify its price down, each time changing its price to the prevailing bid, which led to instantaneous trade executions. At 8:08:34, this order was completely filled with a final quantity of 1,086 contracts and a final price of 1712.75.

The Panel further found that over the course of the next seven seconds, Infinium’s ATS entered approximately 55 sell orders in the December 2009 Mini-Nasdaq contract, 21 of which were modified in the same quantity-up, price-down manner. In total, between 8:08:32 and 8:08:39, Infinium sold 6,958 December 2009 Mini-Nasdaq contracts at prices ranging from 1716.00 to 1687.75. Infinium subsequently contacted the CME Globex Control Center to invoke the error trade policy, resulting in price adjustments on 763 contracts that were executed below 1691.50.

The Panel also found that Infinium had experienced a similar malfunction with this same ATS on October 7, 2009, where the ATS errantly entered orders into an electronic trading system. Following this error, Infinium verbally instructed its traders to disable this particular ATS function until the malfunction could be fixed as part of Infinium’s then ongoing project to overhaul its entire ATS software architecture. Infinium, however, took no further action to correct, modify, or disable the malfunctioning ATS before October 28, 2009.

The Panel concluded that by failing to diligently supervise its systems, employees or agents in the conduct of their business relating to the Exchange, Infinium violated CME Rule 432.W. The Panel further concluded that in allowing a malfunctioning ATS to operate in a live trading environment, Infinium committed an act detrimental to the welfare of the Exchange, in violation of CME Rule 432.Q.

 

PENALTY:

In consideration of the offer of settlement, the Panel:

1. fined Infinium $500,000; and

2. ordered Infinium to cease and desist from engaging in the type of conduct described above.

In levying this penalty, the Panel considered significant steps Infinium has taken since February 2010 to enhance its quality assurance controls and risk protections. The Panel recognized that with these enhancements Infinium’s quality assurance and risk controls are consistent with the FIA Principal Traders Group’s best practices for electronic trading firms. For example, Infinium created a committee comprised of representatives from various departments within Infinium to oversee its quality assurance controls and risk management; drafted comprehensive written procedures that, among other things, govern the development, testing, and implementation of Infinium’s electronic trading systems; and developed and implemented additional electronic risk management tools to monitor automated trading strategies and prevent a similar error from occurring in the future. The Panel further considered Infinium’s enhancements to its supervisory controls over development, testing, and modifications to its electronic trading systems.

EFFECTIVE DATE:

November 25, 2011