Exchange operator CME Group Inc. fined Infinium Capital Management, a high-frequency trading firm with offices in Chicago, London, and New York, a total of $850,000 for three separate computer malfunctions that rattled futures markets in 2009 and 2010.
Infinium trading programs malfunctioned on Oct. 7 and again on October 28, 2009, causing uncontrolled selling of e-mini contracts on the Chicago Mercantile Exchange. Then, on Feb. 3, 2010, the firm lost control of an algorithm that bought oil futures in rapid succession on the New York Mercantile Exchange.
CME, operator of both exchanges, charged the firm on Friday for "acts detrimental" to the marketplace in the 2009 incidents, for improper identification in the 2010 incident, and for failing to supervise its activities in these cases.
Reuters reported the oil-futures algorithm malfunction and CME investigation last year. Infinium's buying on Feb. 3 sparked a frenzied $1 surge in oil prices late that day as the computer program sent thousands of orders per second, racking up a million-dollar loss for the firm.
Infinium neither admitted not denied the rule violations, CME said in separate disciplinary notices.
High-frequency trading firms rely on rapid-fire trades and short-term strategies to make markets and earn the spreads on fleeting price imbalances.
Although these firms add liquidity to securities, they have been criticized by some for destabilizing markets, and the Commodity Futures Trading Commission is considering new rules that could rein them in.
Infinium, run by CEO Charles F. Whitman, is a household name in Chicago's trading community and a member of the Futures Industry Association's Principal Traders Group, a lobby group for high-frequency traders. The company did not immediately return calls.
CME found that Infinium errantly sold 6,958 December-dated e-mini Nasdaq 100 Index futures over seven seconds early on Oct. 28, 2009. The firm later contacted the exchange about the problem, resulting in price changes in 763 contracts.
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, CME said.
Those two incidents resulted in a $500,000 fine.
The malfunction on the NYMEX -- which involved the trading of an exchange-traded fund called the United States Oil Fund and the U.S. crude benchmark future, West Texas Intermediate -- resulted in a $350,000 fine.
CME said that, in that instance, Infinium used an algorithm in the open market that had been created the previous night with only one to two hours of back-testing.
(Reporting by Jonathan Spicer; Editing by Tim Dobbyn)