NOTICE OF DISCIPLINARY ACTION

FILE NO.:

CME 10-7599-BC

NON-MEMBER:

James Chiu

EXCHANGE RULE VIOLATION(S):

(Legacy) Rule 432. General Offenses

It shall be an offense:

B. to engage in… conduct or proceedings inconsistent with just and equitable principles of trade;

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;

T. to engage in dishonorable or uncommercial conduct.

FINDINGS:

Pursuant to an offer of settlement in which James Chiu (“Chiu”) neither admitted nor denied the rule violations upon which the penalty is based, on February 27, 2014, a Panel of the CME Business Conduct Committee (“Panel”) found that Chiu is subject to the Panel’s jurisdiction because the conduct at issue occurred while he was employed as a proprietary trader by a member firm. The Panel also found that from August 30 through September 15, 2010, Chiu—while entering and managing orders manually and without the use of a pre-programmed algorithm—engaged in certain activity wherein he entered large orders on the same side of his existing position in the E-mini Standard and Poor’s 500 Stock Price Index futures market (“E-mini S&P”), most of which he did not affirmatively want to be filled, and he fully canceled these large orders less than one second before his passive liquidating orders began trading or before he entered an aggressive liquidating order. Because Chiu’s large orders on the best bid (offer) temporarily created a large imbalance between the volume on the inside bid and offer, some other market participants may have reacted by modifying, entering, or cancelling their orders from the displayed book.

Further, the Panel found that on September 15, 2010, Chiu, without full regard to his trading account’s cash balance, the potential risks presented to his firm and clearing firm associated with receiving fills on these orders, or his current position in the market (long 1498 contracts), entered six 2,000-lot sell orders on Globex at the best offer, most of which he did not affirmatively want to be filled, and then subsequently canceled all six orders within 0.925 seconds of entering the first order, and within even a shorter time after he entered the sixth order.

In making these findings, the Panel considered the temporary volume imbalances, the percentage canceled and the exposure time of the large orders Chiu entered and fully canceled, and the potential disruption to the market.

The Panel found that Chiu thereby violated CME Rules 432.B., 432.Q., and 432.T.

PENALTY:

In accordance with the settlement offer, the Panel ordered Chiu to pay a $155,000 fine, and to serve a two month suspension from membership privileges on any CME Group Inc. exchange, access to all CME Group Inc. trading floors, and direct and indirect access to all electronic trading and clearing platforms owned or controlled by CME Group Inc. The suspension shall run from March 3, 2014, through and including May 3, 2014.

EFFECTIVE DATE:

March 3, 2014