Faxon Analytics LLC has agreed to pay a fine of $40,000 for violating CME rules. Pursuant to an offer of settlement in which Faxon neither admitted nor denied the rule violations or factual findings upon which the penalty is based.
Panel of the Chicago Mercantile Exchange (CME) Business Conduct Committee found that on December 20, 2019, an automated trading system (ATS) designed and operated by Faxon entered multiple orders in the December 2019 Micro E-mini Nasdaq futures market, in a period of low liquidity, and 10 minutes prior to the expiration of the contract. Faxon operated the ATS for the benefit of a third party’s account.
The ATS’s orders could not be filled immediately and instead were modified, resubmitted, and entered through multiple price levels. The ATS failed to identify its own orders in market data, which caused the ATS to enter new orders through multiple price levels. As a result, this activity cause the market to enter a reserved state on multiple occasions.
The Panel found that Faxon thereby violated Rule 432.Q. Additionally, Faxon failed to diligently supervise the ATS to the extent that it failed to properly test the ATS’s operation at contract expiry prior to its deployment in the market. The Panel found that Faxon thereby violated Rule 432.W.
RULE 432. GENERAL OFFENSES (in part) states:
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 any party to fail to diligently supervise its employees and agents in the conduct of their business relating to the Exchange.
The effective date of the notice of disciplinary action is February 24, 2022.