Infinium Capital Management, one of the world's largest automated trading firms, has been hit with an $850,000 (£542,000) fine after its algorithmic systems wrought havoc on the markets, in some instances following a rapid testing cycle.
US futures exchange operator CME Group imposed the fine on the Chicago-based firm for a series of problems in 2009 and 2010.
Executives at the regulator expressed anger that Infinium had only tested one algorithm for less than two hours before running it live in the markets - when the company's own standard was for six to eight weeks' testing.
Infinium, which was criticised for serious management-level failures, said it had improved processes and no longer employed the testing staff who played a part in the errors.
In October 2009, Infinium identified a problem in its algo trading system and instructed staff to disable elements of the software. But the changes were not made, and weeks later the systems bought a raft of NASDAQ futures contracts.
Infinium had failed to "diligently supervise its systems, employees or agents", the CME said. By "allowing a malfunctioning [system] to operate in a live trading environment, Infinium committed an act detrimental to the welfare of the exchange", it stated.
Four months later, another problem in the system led Infinium to automatically make nearly 7,000 orders for crude oil futures on the Nymex market. In only 24 seconds, the automated systems had bought 4,600 of the contracts before the order was cancelled.
Infinium had bypassed automatic systems, intended to block questionable trades, by placing large numbers of individual contracts rather than one large order. It was also criticised after an instance where one employee used another's login in order to correct a trading error.
Following the problems, Infinium has taken "significant" measures to improve quality control and avoid risk, and now meets the standards set by the Futures Industry Association, the regulator noted.
Infinium told the Financial Times in a statement that it now has "some of the most robust systems in the industry". It paid the fine, but neither admitted nor denied the accusations.
It added: "We remain committed to facilitating orderly markets and establishing minimum industry standards so that similar errors are not brought to the marketplace by ourselves or other trading firms."
Ben Chilton, commissioner at the Commodity Futures Trading Commission and a well-known critic of algorithmic trading, told the FT that traders needed to test their systems much more thoroughly before setting them live on the markets.
The systems "are out there trying to scoop up micro-dollars in milliseconds," he added. "I do question the value they add to markets."