On November 2, 2015, the CME Group issued Market Regulation Advisory Notice RA1517-5 (Advisory) dealing with the responsibility of market participants to diligently supervise any automated trading system (ATS) that they operate. The Advisory applies to all CME Group Exchanges – CME, CBOT, NYMEX, and COMEX.

Under Rule 432.W. of each Exchange, it is an offense for “any party” to fail to diligently supervise its employees and agents in the conduct of their business relating to the applicable Exchange. The Exchanges have used that rule to discipline conduct relating to a trading firm’s ATS. In one case, a trading firm was fined $125,000 when a programming error in its ATS caused the firm to submit over 27,000 resend requests to the Exchange on a single day until the Exchange closed all of the firm’s ports.

The Advisory reminds firms that an ATS operated by the firm is regarded as an agent of the firm and that, because the firm is strictly liable for the acts and omissions of its agents and employees, it is strictly liable for the actions of its ATS. According to CME Market Regulation staff, this does not mean that a member firm would be strictly liable for the actions of an ATS operated by its customer. If a customer-operated ATS were found to have violated exchange rules, the customer is the party that is responsible to diligently supervise its ATS.

The full text of the CME Group’s Advisory can be found here.