By: Christopher Waitz, Director of Regulatory Affairs, Eventus
Last year, U.S. futures exchanges continued to pursue enforcement action, with fines up to $500,000, for each violation of exchange Operator ID rules. The Operator ID, commonly known as “Tag 50” due to the data field used by CME group exchanges, is used to uniquely identify the person or team submitting any order to the exchange system. Operator ID rules are designed to advance market transparency. They ensure that each order tracks back to a responsible party, that a single Operator ID is not used by multiple individuals or teams, and that Operator IDs are not used for prohibited purposes.
Cboe, CME, and ICE require that each person or team that submits orders to the electronic trading system be identified by a unique Operator ID. While the exact rules that futures brokers and traders must follow vary by exchange, in general Operator IDs must follow these requirements:
- Be unique at the clearing member level
- Meet exchange specific length and character requirements
- Be registered with the exchange
- May not trade against itself
- Tagged as either an “Individual” or “Team”/ “ATS,” with an “Individual” representing only a single person
- Under no circumstances can a person submit orders under an Operator ID that is not registered under it
- A “Team” or “ATS” Operator ID may only be used to identify the actual group of people who simultaneously manage an Automated Trading System (ATS)
- A “Team” or “ATS” Operator ID may only submit automated messages to the exchange system
- If a “Team” or “ATS” needs to submit a manual message, the message must be submitted with an “Individual” Operator ID assigned to the specific single team member who submitted the message
- The Manual Order Indicator (tag 1028) is required for most order types to say whether the order was submitted by manual or automated means
Failure to follow exchange Operator ID rules can result in exchange enforcement action for a missing or inaccurate registration, a non-identifiable operator, invalid use of an Operator ID, an invalid Operator ID format, or inaccurate use of the manual order indicator. Each violation carries a range of potential fines.
Validus in Practice (ViP): Validus’ trade surveillance and algo monitoring tools offer a suite of procedures designed to detect potential violations of Cboe, CME and ICE Operator ID rules. The procedures are designed for futures commission merchants (FCMs), introducing brokers, and traders to use across individual and Team/ATS Operator IDs and include checks for correct use of the manual order indicator (tag 1028). Validus includes alerts designed for a range of use cases:
- If trade data contains an Operator ID not previously seen, not present on a trade record, is improperly formatted, used from multiple locations in a short period of time, or continuously used longer than the maximum configured shift length;
- If manual (tag 1028) orders are submitted by a Team or ATS Operator ID or if the manual order indicator is not property populated; and
- If Operator ID is not used for a specified number of days or if an individual Operator ID is potentially used by multiple individuals or for ATS operations.
About Eventus
Eventus is a leading global provider of multi-asset class trade surveillance and market risk solutions. Its powerful, award-winning Validus platform is easy to deploy, customize and operate across equities, options, futures, foreign exchange (FX), fixed income and digital asset markets. Validus is proven in the most complex, high-volume and real-time environments of tier-1 banks, broker-dealers, futures commission merchants (FCMs), proprietary trading groups, market centers, buy-side institutions, energy and commodity trading firms, and regulators. The company’s rapidly growing client base relies on Validus and Eventus’ responsive support and product development teams to overcome its most pressing regulatory challenges. For more, visit www.eventus.com.