The CME just fined a trader $25K and suspended trading privileges for 25 days after the the fine is paid. I frequently talk to clients about the importance the exchanges (and the CFTC) place on proper use of the trader log in (referred by the CME as Tag50 to reflect where in the order and transaction message the trader ID appears. One of the points i raise is that the trade oversight mechanisms start from the Tag50 and the deal with aggregated data from there.
In this case, the CME emphasized that point. 
 
         "Yang’s conduct impeded the Exchange’s ability to further investigate potentially violative messaging activity by one or more individuals who utilized Yang’s Tag 50"

The actions were not undertaken by the trader but the use of the Tag50 made an investigation harder. The trader paid a significant penalty and a suspension. This should be a caution to all firms and traders that you are responsible for any mistake someone else makes using your id - just don't lend it out. The order is here

I hope everyone has a great Thanksgiving (if in the US).

.Readers of this blog, our clients, and people who have been at a DCM seminar presentation in the past may recall DCM's distinction between trade compliance and market compliance. We use trade compliance to refer to oversight of transactional activities - bid, offer, execution and the related issues like disruptive trading - while we use market compliance to refer to oversight of other areas of the regulatory rules that frequently deal with market transparency - such as block trade reporting and Tag 50 log ins. Frequently, disciplinary actions under the market compliance rules are accompanied by smaller fines and possibly a short suspension (especially in the case of improper use of Tag 50s).
But every once in a while, the market is reminded that market transparency and accuracy is just as important to the exchanges under market compliance as it is under trade compliance. Today the ICE issued a disciplinary notice for Merrill Lynch International that entailed a $200K fine. The notice is here. 
The notice indicates that the firm had failed to report block trades within the 15 minute reporting window " at various times" of a 4 month period. They also were alleged to have misreported the time of execution of the block trade (which can be a concern - the individual may know the reporting time and attempt to fudge the execution time to cover their failure to report). They also cited that a broker must - for every trade or with by some other standing direction - have explicit direction that a trade may be executed as a block.
Finally, since there appear to be failures in what one might expect to be standard control processes for a brokerage firm, a failure to supervise violation was also referenced.
This is a fairly significant fine for a market compliance issue but it is by no means the largest. It does, however, serve as abundant caution that it is not just trade compliance that can bring significant impacts from the exchange disciplinary process.

One of the areas DCM has addressed multiple times this year (and last year) is the exchanges increasing trend towards imposing "failure to supervise" fines on the companies where traders have improper behavior. Mitsubishi  RTM (the metals trading side - not the oil side) was just fined $250,000 for "failure to supervise". The disciplinary notice had a couple items that you don't always see but that we stress in our review of training programs:
1. The company "failed to properly train one of its traders, a secondee (“Trader A”), who had no prior trading experience, before placing Trader A into a temporary trading rotation to trade futures on NYMEX".

• Companies should always have a structured and rigorous "movers and joiners" training program;
• The program should cover traders, compliance oversight staff, and operations staff in mid and back office

​2. New staff should always have strict structures around permissible trading activity. Trade limits and controls should be strictly enforced. The CME noted something I haven't seen before:
"ailed to provide sufficient training specific to trading CME Group markets, or CME Group trading rules, including disruptive trading, to Trader A. As a result, Trader A attempted to trade through experimentation, resulting in executing disruptive trades that violated Exchange rules."

• "trade through experimentation" is such a wonderful phrase; it may explain much of my trading career

​3. The CME made a significant statement of the responsibility chain:
"The Panel concluded that, pursuant to Exchange Rule 433, (it) was strictly liable for the acts of its employee whose conduct the Panel concluded violated Exchange Rule 575.A."

• the language is frequently associated with liability but the "strictly liable" is a particular emphasis here

​
The trading appears to have been basic spoofing or disruptive trading but the fine indicates the exchange's displeasure with the lack of training. This should be a blueprint for new shops entering US markets or expanding organizations.

​The CME notice is here