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      Course Overview

      Overview

      • CME Group Rules and Regulation Overview
      • Market Regulation: Meet the Team

      Wash Trades

      • Wash Trades - Definition of a Wash Trade
      • Wash Trades – Responsibility and Implications
      • Wash Trades – Automated Trading Systems
      • Wash Trades - Freshening

      EFRP

      • EFRP - What is an EFRP?
      • EFRP - Parties to an EFRP
      • EFRP - Pricing and the Related Position for EFRPs
      • EFRP - Reporting and Recordkeeping
      • EFRP - Prohibited Transitory EFRPs

      Block Trades

      • Block Trades - What is a Block Trade?
      • Block Trades – Participant Eligibility
      • Block Trades – Eligible Products, Times and Prices
      • Block Trades – Reporting and Recordkeeping
      • Block Trades – Pre-Hedging
      • Block Trades – TAS, TAM and BTIC

      Disruptive Practices Prohibited

      • Disruptive Practices Prohibited - General Information
      • Disruptive Practices Prohibited - Factors Market Regulation Considers
      • Disruptive Practices Prohibited - Spoofing
      • Disruptive Practices Prohibited - Flipping
      • Disruptive Practices Prohibited - Additional Examples
      • Disruptive Practices Prohibited - Frequently Asked Questions

      CME Globex Operator ID Requirements

      • CME Globex Operator ID Requirements – General Rule
      • CME Globex Operator ID Requirements - Registration and Requirements
      • CME Globex Operator ID Requirements - Individual and Team Operators

      Pre-Execution Communications

      • Pre-Execution Communications - Overview & Crossing Protocols

      Rule 524 - TAS, TAM, BTIC and TACO

      • Rule 524 - TAS, TAM, BTIC, and TACO

      Enforcement Process

      • Enforcement Process - Introduction and Initial Referral
      • Enforcement Process - Offer of Settlement
      • Enforcement Process - Settlement Hearing
      • Enforcement Process - Default Hearings
      • Enforcement Process - Contested Hearings
      • Enforcement Process - Appeals
      Market Regulation
      You completed this course.Get Completion Certificate

      Disruptive Practices Prohibited - Spoofing

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      Rule 575, Disruptive Practices Prohibited, prohibits the entering of an order or causing the entry of an order with the intent to cancel the order before execution or to modify the order to avoid execution. This practice is commonly known as spoofing.

      An example of prohibited spoofing would be when a market participant enters one or more orders to generate selling or buying interest in a specific contract. By entering the orders, often in substantial size relative to the overall pending order volume, the market participant creates a misleading and artificial appearance of buy- or sell-side pressure.

      The market participant places these large orders at, or near, the best bid and offer prevailing in the market at the time. They benefit from the market’s reaction by either receiving an execution on an already resting order on the opposite side of the book from the larger order(s) or by obtaining an execution by entering an opposing side order subsequent to the market’s reaction.

      Once the smaller orders are filled, the market participant cancels the large orders that had been designed to create the false appearance of market activity. Placing a bona fide order on one side of the market while entering order(s) on the other side of the market without intention to trade those orders violates Rule 575.

      Frequently Asked Questions

      Does this rule prohibit me from making a two-sided market with unequal quantities?

      No. Market participants are not precluded from making unequal markets as long as the orders are entered for the purpose of executing bona fide transactions. If either (or both) order(s) are entered with prohibited intent, including recklessness, such activity will constitute a violation of Rule 575.

      Are stop orders entered for purposes of protecting a position prohibited by Rule 575?

      Market participants may enter stop orders as a means of minimizing potential losses with the hope that the order will not be triggered. However, it must be the intent of the market participant that the order will be executed if the specified condition is met. Such an order entry is not prohibited by this rule.

      Are iceberg orders considered spoofing?

      No. The use of iceberg orders is not considered a violation of Rule 575. However, a violation may exist if an iceberg order is used as part of a scheme to mislead other participants.

      For example, if a market participant pre-positions an iceberg on the bid and then layers larger quantities on the offer to create artificial downward pressure that results in the iceberg being filled.

      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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