The exchanges are starting off 2015 with a continued focus on investigating and penalizing violations of disruptive trading practices, as well as pre-arranged trading and block trading. These three categories represented a large majority of the exchanges’ enforcement efforts in 2014, and from what we saw in January, they will continue to remain a focus going forward.
On this note, this month the ICE Futures Exchange will implement an amendment to Rule 4.02, adding section (l) to consolidate rules that prohibit disruptive trading practices.
The new text of Rule 4.02(l) reads as follows:
In connection with the placement of any order or execution of any Transaction, it shall be a violation of the Rules for any Person to:
(l) Engage in any other manipulative or disruptive trading practices prohibited by the Act or by the Commission pursuant to Commission regulation, including, but not limited to:
(1) Entering an order or market message, or cause an order or market message to be entered, with:
(A) The intent to cancel the order before execution, or modify the order to avoid execution;
(B) The intent to overload, delay, or disrupt the systems of the Exchange or other market participants;
(C) The intent to disrupt the orderly conduct of trading, the fair execution of transactions or mislead other market participants, or
(D) Reckless disregard for the adverse impact of the order or market message.
(2) Knowingly entering any bid or offer for the purpose of making a market price which does not reflect the true state of the market, or knowingly entering, or causing to be entered, bids or offers other than in good faith for the purpose of executing bona fide Transactions.
The new rule is effective as of January 14, 2015. The FAQ on the new Rule 4.02(l) can be found here: https://www.theice.com/publicdocs/futures_us/Futures_US_Disruptive_Practice_FAQ.pdf.