There are types of disruptive order entry and trading practices that CME Group finds to be abusive to the orderly conduct of trading or the fair execution of transactions.

Such practices have historically been prohibited by other Exchange rules, including, but not limited to, Rules 432.T. (“to engage in dishonorable or uncommercial conduct”), 432.B.2. (“to engage in conduct or proceedings inconsistent with just and equitable principles of trade”) and 432.Q. (“to commit an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange”). CME Group adopted Rule 575 Disruptive Practices Prohibited in September 2014 to clarify these types of prohibited practices.

Will orders that are entered by mistake constitute a violation of Rule 575?

An unintentional, accidental or fat-finger order will not constitute a violation of Rule 575, but such activity may violate other Exchange rules, including, but not limited to, Rule 432.Q. (Acts Detrimental to the Welfare of the Exchange).

Is it prohibited to enter an order for a quantity larger than a market participant expects to trade in electronic markets subject to a pro-rata matching algorithm?

Orders entered to achieve an execution are permitted. Accordingly, orders entered into markets subject to a pro-rata matching algorithm that are intended to maximize execution of those orders are permitted.

However, it is considered an act detrimental to the welfare of the Exchange and may be a violation of other Exchange rules for a market participant to enter an order without the ability to satisfy, by any means, the financial obligations attendant to the transaction that would result from full execution of the order. Participants should be prepared to, and capable of, handling the financial obligations attendant to the full execution of their orders.

May orders be entered into CME Globex for the purpose of testing, such as to verify a connection to CME Globex or a data feed from CME Globex?

CME Group offers test products in the production environment to facilitate connectivity and messaging testing on CME Globex.

Read more about this process.

The entering of an order(s) in a non-test product without the intent to execute a bona fide transaction, including to verify connectivity or checking a data feed, is not permissible. The prohibition does not preclude a market participant from entering a bona fide order into CME Globex that is intended to be executed and where such execution may also serve some other risk management purpose, such as verifying the flow of the executed trades through the firm’s back-office systems.

Is the creation or execution of User Defined Spreads (UDS) for the purposes of deceiving or disadvantaging other market participants a violation of Rule 575?

Yes. Although the CME Globex system provides certain protections such as reasonability checks with respect to option deltas and the futures price on covered instruments, the UDS functionality requires users to exercise diligence and care in the creation of option spread instruments, including the creation of covered option strategies.

Market participants are reminded that knowingly creating and/or trading UDS instruments in a manner intended to deceive or unfairly disadvantage other market participants is considered a violation of Rule 575. Additionally, the Global Command Center may price adjust or cancel trades that are deemed to negatively impact the integrity of the market pursuant to the provisions of Rule 588 (Trade Cancellations and Price Adjustments).

Conclusion

Market participants need to be aware of the rules surrounding disruptive practices to avoid violating Rule 575 (“Disruptive Practices Prohibited”).

This is part of a course on Disruptive Practices Prohibited. For official regulatory guidance on Rule 575, reference the applicable Market Regulation Advisory Notice.

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