High-Frequency Firm Fined $850K for 3 Computer Malfunctions
November 25, 2011
The CME Group has fined a high-frequency trading firm $850,000 for three separate computerized trading malfunctions that disrupted futures markets.
The operator of futures and other derivatives markets fined Infinium Capital Management for malfunctions on Oct. 27 and 28, 2009, that led to what Reuters called “uncontrolled selling of e-mini contracts on the Chicago Mercantile Exchange. ‘’
In the third incident, on Feb. 3, 2010, Infinium appeared to lose control of an algorithm that lost control of an algorithm that “bought oil futures in rapid succession on the New York Mercantile Exchange.”
CME owns both the Chicago Mercantile Exchange, from which the group’s name derives, as well as the New York Mercantile Exchange.
Infinium's buying on Feb. 3 lat year led to a $1 surge in oil prices as the computer program sent thousands of orders per second, Reuters reported.
Infinium suffered a million-dollar loss, but did not admit or deny violating exchange rules in the incicents.
In the 2009 cases, CME found that Infinium errantly sold 6,958 December-dated e-mini Nasdaq 100 Index futures in the span of seven seconds early on Oct. 28.
A similar malfunction with the same so-called automated trading system happened on Oct. 7, though Infinium "took no further action to correct, modify, or disable" it before Oct. 28, according to the Reuters report.
Those two incidents resulted in a $500,000 fine.
The NYMEX incident involved the trading of an exchange-traded fund called United States Oil Fund and the U.S. crude benchmark future, West Texas Intermediate and led to a $350,000 fine.
The penalties are among the first fines of their kind involving high-speed automated trading, the Financial Times reported.
“These superfast trading systems, when they go feral, can do so in a hurry,” Commodity Futures Trading Commission member Bart Chilton told the Times “They are out there trying to scoop up micro-dollars in milliseconds. I do question the value they add to markets. And get this, they aren’t even required to be registered with the regulator. That needs to change.”
Chuck Whitman, founder and chief executive of Infinium, could not be reached for comment.
Officials of the CME Group could not be reached for comment by Securities Technology Monitor.
