NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CME 11-8056-BC

MEMBER:

TOWER RESEARCH CAPITAL INVESTMENTS LLC

CME RULE VIOLATIONS:

Rule 432. GENERAL OFFENSES (in part)

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.

(Legacy) Rule 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 bona fide market position exposed to market risk (transactions commonly known or referred to as wash trades or 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.

FINDINGS:

Pursuant to an offer of settlement in which Tower Research Capital Investments LLC (“Tower”), acting through its affiliate Tower Research Capital LLC, neither admitted nor denied the rule violations upon which the penalty is based, on September 18, 2014, a Panel of the CME Business Conduct Committee (“BCC” or “Panel”) found that it had jurisdiction over Tower pursuant to CME Rules 400 and 402 as the conduct occurred while Tower was a CME member. The Panel also found that on multiple dates in December of 2011, Automated Trading Systems (“ATSs”) that Tower trading groups utilized executed numerous transactions in, respectively, multiple Micro FX futures contract markets and the S&P 500 Select Sector Index futures product suite wherein orders for the trading groups’ accounts self-matched. Although the self-match transactions caused volume aberrations in the contract markets, the transactions did not cause price aberrations and the trading groups did not profit from the transactions. The Panel further found that although the trading groups did not design the ATSs to execute self-match transactions, the trading groups should have known that the orders entered by the ATSs would match. Moreover, the Panel found that the wash transactions occurred as a result of the trading groups’ failure to employ effective functionality designed to minimize self-matches. The Panel concluded that Tower thereby violated CME Rules 432.Q., 432.W., and 534.

PENALTY:

In accordance with the settlement offer, the Panel fined Tower $65,000.

EFFECTIVE DATE:

September 22, 2014