Collective2's statement about the CME fine

Hi, Collective2 Members:

Later today you may read that the CME fined Collective2 $30,000. They did this because in January 2018, so many customers were following one trading strategy on Collective2 that, when a trade was issued, the price of a futures contract changed.

You can read my full opinion on this matter here:

I was very surprised by the CME’s notion that customers of their exchange need to make sure that they do not place orders that affect prices. It seems to me that that is the very essence of an exchange: prices are supposed to change based on supply and demand.

But Collective2 is a small company, and we do not have resources to litigate this further, so we have agreed to settle the matter.

We will respect the CME’s wishes and make changes to our software so that it monitors market conditions when placing trades.

– Matthew


Thanks for the update Matthew. Weasels all the way down.

Thats the problem with having too many subs for any one strategy especially if a strategy leverages highly. Typically institutions average in their trades in order to allow liquidity to exist.

This is a problem since the dow emini futures is not highly liquid compared to its counterparts such as the nasdaq emini and s&p emini futures.

Its a shame that there is a fine as I doubt large institutions would be fined if they made such a mistake and entered a large order that made the product illiquid.

Definitely there should be a monitor on the number of contracts that are traded thru all the subs to catch over sizing.

Liquidity issues are a factor that makes sim trading completely different than live trading. This is why many strategies look great before they start getting subs. The more subs there are the less likely the strategy will be able to function the way it use to. This typically occurs in thinner traded instruments such as options and futures.

A number of years ago we had been contacted through our retail broker that the POX (Pacific options exchange) was investigating trade patterns for RAES (the options equivalent of SOES) abuse. Our private firm had already instituted rules to prevent excessive trades on one contract. We used territorial rules to prevent multiple traders from hitting the same contract twice by different traders internally and we had time limits as to how often you could hit the same strike by the same trader. The exchanges fortunately couldn’t find any violations from our small company as a result but we still had difficulty when the brokers would let the exchanges push them around and bust trades. We lost over $350,000 from the CBOE alone. Our complaints to the SEC went unanswered.

Will you be able to share with us what measures you will be taking to prevent trades from moving the prices? Will you be calculating size and altering how customer orders are released? Will this affect the speed of execution and ultimately change the results of your customer fills?

We were also contacted by an attorney out of Chicago regarding the CBOE abuse and they wanted to know if we could join their lawsuit. My own attorney advised me against it because the exchanges have access to huge resources and the law firm representing them had hundreds of lawyers at their disposal. The lawyer, wisely told us to not join. I don’t think their lawsuit ever went anywhere and we saved the initial $60,000 fee they wanted us to cough up. My lawyer told me they will just keep filing motions to run down the clock until we run out of funds. I’m glad we didn’t litigate.

It is very bad that this happened. You need to remove low liquid trading tools. Otherwise, such a situation will be repeated again and again.

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This CME fine is ridiculous. Is it possible to know which C2 system was involved?
Thank you.

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I think the best course is to not go into too much detail here. Collective2’s official position on this matter is provided above. Other than that, there’s not much more I can say.