Oversight of Automated Trading 

at CME Group

Dean Payton, Managing Director, Market Regulation

CFTC TECHNOLOGY ADVISORY COMMITTEE

MARCH 29, 2012
© 2011 CME Group. All rights reserved

Changes in Market Structure & Infrastructure

2

Technological 

Innovation & 

Market 

Structure 

Evolution

Expand 

Access, 

Transparency, 

& Competition

Participants 

Seek to Optimize 

Quality & 

Efficiency of 

Execution

Increased Automation

Evolution of 

Market 

Oversight 

& 

Risk 

Management
© 2011 CME Group. All rights reserved 3

Open Outcry Trading

12% of Volume

Competitively Executed Volume By Venue

Electronic Trading

88% of Volume
© 2011 CME Group. All rights reserved

127 

59 

35 

33 

14.8 

7.8 6.2 

4.2 

0

20

40

60

80

100

120

140

160

 -

 10

 20

 30

 40

 50

 60

 70

 80

 90

 100

 110

 120

 130

 140

2004 2005 2006 2007 2008 2009 2010 2011

Average Daily Order Messages (millions)

Milliseconds

Improvements in CME Globex Infrastructure

Have Increased the Efficiency of Trading

Average Daily Order Messages RTT

2012 futures RTT running 

approximately 3.6 ms

4
© 2011 CME Group. All rights reserved

Evolution of Market Driving Evolution of Oversight

5

LEVEL PLAYING FIELD

RISK CONTROLS

Topics

Fair 

Access

Risk of 

Disruption

Oversight 

Capabilities

Trading 

Practices

 

A

U

D

I

T 

T

R

A

I

L
© 2011 CME Group. All rights reserved

Equal Access to Host Proximity & Data

 All participants have non-discriminatory access to the 

same connectivity options at the same prices 

 Market data is disseminated to all participants

simultaneously

 All participants have access to identical data

 Anonymity of traders and firms is protected in all 

bids, offers and execution reports

 All orders are processed in the order received 

 Bids and offers are available to all participants and 

matched according to transparent algorithms 

(primarily Price/Time or Pro-Rata)

6
© 2011 CME Group. All rights reserved

CME Group Electronic Audit Trail

 CME Group’s Market Regulation Department has developed a 

highly granular and precise audit trail for electronic order, 

trade and market data information which we further enrich 

with substantial reference data.

 Market Regulation tracks every order, modification, 

cancellation, rejection, transaction and book state change

on the Globex platform at the millisecond level in its 

regulatory systems.

7
© 2011 CME Group. All rights reserved

Data Set Comparison & Audit Trail Tools

Order Entry Data

(RAPID System)

Cleared Trade Data

(SMART System)

Market Data

(ARMADA System)

Order entry and trade 

data

Processed trade data 

from Clearing House

Order book, trade price 

and volume

≈ 35 data fields ≈ 120 data fields Price, time and quantity

≈ 250-300 million 

messages per day

≈ 7.5 million

transactions per day

≈ 80-100 million book 

state changes per day

Live and History T+1 and History Live and History

8

In addition, we have a Large Trader Reporting System 

which gives us access to end-of-day positions of all 

reportable accounts - representing ≈ 80% of open interest.
© 2011 CME Group. All rights reserved

Electronic Audit Trail – Identification Fields

9

Clearing Firm

Trading Firm

Session ID

Account

ATS Order 

Identifier 

(Tag 1028)

Country of 

Origin

Market 

Participant ID

Operator ID 

(Tag 50)

& ATS Team

How we know WHO is acting in 

CME Group markets.

Identified Market Participants represent ≈ 90% of Volume

Identified Operator IDs (Tag 50s) represent ≈ 75% of Volume

Each order is designated as automated or manual entry (Tag 1028)
© 2011 CME Group. All rights reserved

Multifaceted Oversight 

10

Global 

Command 

Center

Market 

Regulation

Clearing 

Real-Time Monitoring Risk

Risk Parameters

Messaging Efficiency 

Trade Cancellations

Trading Halts

Risk Management Reviews

Globex Credit Controls

Account Level Live Alerts

Trade Practice Surveillance – Programs & Research

Robust Data Query and Analytical Tools

Live Account Level and Market Alerts 

Investigations and Enforcement
© 2011 CME Group. All rights reserved

Key Regulatory Transactional Data Systems

Rapid System

Electronic Order Entry and Trade Data – Live & History

System connected into the Globex infrastructure 

In-memory database can read/aggregate 1 billion messages per second

Specific functions:

Detail

Aggregation

Profiles

Reconstructed Order Books

Account Position and Volume Alerts

11
© 2011 CME Group. All rights reserved

Key Regulatory Transactional Data Systems

Smart System

 Highly enriched dataset of cleared trades (T+1 and history) across 

all venues with a full suite of analytical applications including:

 Participant and Market Profiles 

 Pattern Detection

 Volumetric Analysis

 Trader Anomalies

 Graphic Capabilities

Armada System

 Publicly Disseminated Market Data - Live & History

 Multispeed Market Replay Functionality

12
© 2011 CME Group. All rights reserved

Oversight: Market Regulation 

 Types of Surveillance & Investigations

 Disruptive Risk Management Deficiencies

(e.g. Risk Controls, Testing, Supervision) 

 Disruptive Trading or Messaging Practices 

(e.g. Spoofing, Pre-Open Abuses, Manipulation)

 Trade Practice Abuses 

(e.g. Wash Trades, Prearrangement, Money Pass, Frontrunning) 

 Anomalies & Complaints 

(e.g. Participant Referrals, Stop Logic Events, Error Trades)

13
© 2011 CME Group. All rights reserved

Risk & Volatility Mitigation Controls

14

Protection Points 

for Market & Stop 

Orders

Cancel on 

Disconnect 

Protection

Maximum Order 

Size Protection

Price Banding

Stop Logic 

Functionality

Globex Credit 

Controls

Messaging Volume 

CME Controls

Globex

 Robust risk management and volatility mitigation frameworks are 

critical to market integrity and market participant confidence. CME 

Group has designed strong risk and volatility mitigation controls at 

the exchange level which complement firm-level controls.
© 2011 CME Group. All rights reserved

Risk & Volatility Mitigation Controls

Product Price

NonReviewable 

Range

%

Price 

Banding %

Stop-Logic 

Trigger %

Protection 

Points %

E-Mini S&P 1390.00 6.00 0.4% 12.00 0.9% 6.00 0.4% 3.00 0.2%

Corn 6.7300 0.1000 1.5% 0.0975 1.4% 0.1000 1.5% 0.0500 0.7%

10-Year Notes 128-19 0-30 0.7% 0-20 0.5% 0-30 0.7% 0-15 0.4%

Euro FX 1.3200 0.0040 0.3% 0.0060 0.5% 0.0040 0.3% 0.0020 0.2%

Gold 1655.0 10.0 0.6% 12.0 0.7% 10.0 0.6% 5.0 0.3%

Crude Oil 108.00 1.00 0.9% 0.75 0.7% 1.00 0.9% 0.50 0.5%

15

E-mini S&P, Corn and Crude Oil also have price limits and/or circuit 

breakers.
© 2011 CME Group. All rights reserved

Globex Credit Controls

 Required automated pre-trade risk controls at the trading firm 

level without introducing additional order processing latency

 Clearing Firm Risk Administrator has ability to select realtime actions if the risk limits are hit, including: e-mail 

notification, blocking of non-risk reducing orders, 

cancellation of working orders, kill button, early warning options

 Provides protection against high level risks arising from 

adverse execution activity and is intended to complement 

risk management tools used by trading firms and 

clearing firms

16
© 2011 CME Group. All rights reserved

New Risk Management Interface (RMI) 

 To be introduced April 1, 2012

 New risk management tool consisting of a web services API 

and a GUI that allows clearing firms to automatically 

block/unblock order entry at the following levels:

 execution firm

 account

 futures/options

 side of market

 product

 exchange

 Allows firms to build into cross exchange risk systems

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© 2011 CME Group. All rights reserved 18

•Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a 

leveraged investment, and because only a percentage of a contract’s value is required to trade, 

it is possible to lose more than the amount of money deposited for a futures position. Therefore, 

traders should only use funds that they can afford to lose without affecting their lifestyles. And 

only a portion of those funds should be devoted to any one trade because they cannot expect to 

profit on every trade.

•The Globe Logo, CME®, Chicago Mercantile Exchange®, and Globex® are trademarks of 

Chicago Mercantile Exchange Inc. CBOT® and the Chicago Board of Trade® are trademarks of 

the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange, and 

ClearPort are trademarks of New York Mercantile Exchange, Inc. COMEX is a trademark of 

Commodity Exchange, Inc. CME Group is a trademark of CME Group Inc. All other trademarks 

are the property of their respective owners.

•The information within this presentation has been compiled by CME Group for general purposes 

only. CME Group assumes no responsibility for any errors or omissions. Although every attempt 

has been made to ensure the accuracy of the information within this presentation, CME Group 

assumes no responsibility for any errors or omissions. Additionally, all examples in this 

presentation are hypothetical situations, used for explanation purposes only, and should not be 

considered investment advice or the results of actual market experience.

•All matters pertaining to rules and specifications herein are made subject to and are superseded 

by official CME, CBOT, NYMEX and CME Group rules. Current rules should be consulted in all 

cases concerning contract specifications.