The SROs these days are under a bit more pressure to make sure high-frequency trading doesn't get out of control via erroneous orders.

We've seen the SEC act to ensure that high-frequency broker dealers embrace the sort of pre-trade risk management policies that will keep erroneous agency orders from flooding the market. And now a top SRO has initiated an enforcement action. The CME Group has fined Infinium Capital Management, based in Chicago, $850,000 for three separate computer mishaps that affected the commodities markets in 2009 and 2010, according to Reuters. The irony is that Infinium touts its trading prowess.

"Our algorithmic strategies trade momentary pricing anomalies in the global marketplace. Our advanced communication systems allow our traders to see market changes as they occur while our sophisticated software can adapt almost instantaneously to incorporate-and profit from-these changes," the company said.

Unfortunately, its systems malfunctioned in October 2009, causing "uncontrolled selling of e-mini contracts on the Chicago Mercantile Exchange," and in February 2010, when "the firm lost control of an algorithm that bought oil futures in rapid succession on the New York Mercantile Exchange."

Infinium's buying on "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."

This seems to be a case of an erroneous proprietary order as opposed to an agency order. In any case, these sorts of incidents are attracting more attention, and companies need to redouble their efforts at quality assurance and risk management. Some might argue that $850,00 was a slap on the wrist. The firm neither admitted nor denied guilt. While the high-frequency trading industry seems to have had done a better job lately convincing people they offer the market discernible benefits, these sorts of rogue incidents will not do the industry any favors with its critics. 

For more:
- here's the Reuters article

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