NOTICE OF DISCIPLINARY ACTION

FILE NO.: CME 12-8783-BC

MEMBER: KOHL TRADING, LLC

CME RULE VIOLATIONS:

432 GENERAL OFFENSES

It shall be an offense:

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 Kohl Trading, LLC (“Kohl”) neither admitted nor denied the rule violations upon which the penalty is based, on November 25, 2013, a Panel of the CME Business Conduct Committee found that in August 2011, an automated trading system (“ATS”) Kohl traders operated executed numerous transactions in the Eurodollar futures market wherein orders for Kohl accounts unintentionally and incidentally matched. These transactions did not cause price or volume aberrations.

The Panel found that these transactions occurred as a result of Kohl’s pre-trade controls having been temporarily disabled. The Panel found that though the pre-trade controls were inadvertently disabled, Kohl did not utilize any test or alert system to ensure that the controls were functioning as intended.

Finally, the Panel found that while Kohl’s ATS was tested prior to deployment, Kohl tested the ATS in wide mock environment markets that did not account for the variability of live market data. In addition, Kohl conducted no unit testing whereby each component of the ATS was tested independently before trading live. The Panel concluded that in so doing, Kohl violated CME Rule 432.W.

 

PENALTY:

In accordance with the settlement offer, the Panel ordered Kohl to pay a fine of $25,000.

EFFECTIVE DATE:

November 27, 2013