NOTICE OF DISCIPLINARY ACTION

FILE NO.:

NYMEX 11-08420-BC

NON-MEMBER:

STEVEN VU 

NYMEX RULE VIOLATION:

432. GENERAL OFFENSES

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

FINDINGS:

Pursuant to an offer of settlement in which Steven Vu (“Vu”) neither admitted nor denied the findings or rule violation upon which the penalty is based, on June 28, 2012, a Panel of the NYMEX Business Conduct Committee (“Panel”) found that on June 8, 2011, beginning at approximately 13:30 (CT), Vu, a trader employed by Whiteside, which transacts business under the NYMEX Rule 559 hedge exemption and therefore subjects Vu and Whiteside to jurisdiction under NYMEX Rule 400, left an automated trade execution system (“ATES”) operating unattended. Vu had worked on developing the ATES for Whiteside; the ATES was tested for over a year prior to its deployment in April 2011. Vu was responsible for turning the ATES on and off, for setting the ATES parameters and for monitoring the ATES. As a result of an inadvertent human error including by Vu, the ATES was not shut down and continued to operate unattended in the July 2011 Natural Gas futures contract (“NGN1”) until 7:30 (CT) on June 9, 2011.

The ATES was not designed to operate during periods of low liquidity because of the risk of financial losses to Whiteside. During a period of approximately two minutes of the total time the ATES was running unattended, the ATES entered buy orders at progressively higher prices and sell orders at progressively lower prices in a pattern that is reflected in the table, below. Although the ATES had certain automated controls that limited the size of the orders entered and positions established by the ATES, it did not have controls that would have automatically shut it down.

The table below summarizes the market activity and the activity of the Whiteside ATES during some segments of time falling between 18:00:00 and 18:59:59.999 on June 8, 2011. 

As reflected by the data, the NGN1 market traded at higher highs and lower lows during the 18:40, 18:41 and 18:42 minutes, during which time the Whiteside ATES accounted for the proportion of the executed volume as reflected in the above table. The Panel found that the unintended trading of the unattended ATES contributed to the disruptive price movements in NGN1 during the period 18:41:00 (CT) to 18:42:59 (CT). During a two-second period from 18:42:38 (CT) to 18:42:39 (CT), the price of NGN1 declined approximately 34 cents from $4.85 to $4.51. The Panel also found that Whiteside did not trade in the 12 seconds leading up to the two second period, during which the volume traded was 44 contracts. Whiteside accounted for approximately 6% of the volume traded during the referenced two-second period. The Panel found that the unattended ATES modified a pending sell order and elected several resting sell stops resident in the order book on Globex. As a result, numerous other resting sell stops were subsequently triggered.

Based on the foregoing, the Panel found that Vu violated NYMEX Rule 432.Q.

PENALTY:

In accordance with the settlement offer, the Panel ordered Vu to pay a fine to the Exchange in the amount of $25,000.

EFFECTIVE DATE:

July 2, 2012