In the latest installment of " Drums along the Potomac," Risk Desk editor John Sodergreen examined the requirements for "strict liability" under Chicago Mercantile Exchange Rule 433. Rule 433 imposes liability on a firm for the misdeeds of its agents.
Mr. Sodergreen noted that:
- CME Rule 433 and Market Regulation Advisory Notice RA1517-5 could make trading firms "strictly liable for failing to supervise manipulative or disruptive trading activity generated by automated trading systems . . . that they employ"; and
- the "strict liability" provision "parallels [ CEA Section 2], which imposes liability upon principals for the acts of agents, and which has long been interpreted as a strict liability provision."
He stated that trading firms should (i) "implement effective pre-trade risk controls and software change management programs that are in line with the FIA's recommended best practices," and (ii) "utilize a modern trade surveillance system that enables compliance staff to efficiently identify potential manipulative trading activity."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
