• Improper Conduct With Respect to User-Defined Spreads on CME Globex

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • CME Group RA1002-5
      • Notice Date
      • 11 January 2010
      • Effective Date
      • 11 January 2010

    • On November 2, 2009, Exchange-Defined Spreads in options were eliminated, thereby making all option strategies user defined and requiring the use of the CME Globex (“Globex”) User-Defined Spread (“UDS”) methodology for the creation of all option spreads.  A UDS is an option spread that a trader creates by defining the spread’s legs and ratios.  Upon receipt of the spread details, Globex creates a tradable instrument that is disseminated to the entire market.  If the spread being requested by the user is a known spread type (e.g., butterfly, straddle, condor), Globex will identify the spread as that spread type when disseminating it to the market.  If the spread is not a standard Globex spread type (known as unrecognized or generic spreads), the spread instrument will be created exactly as requested by the user and notice of its availability will be distributed to the market.  

       

      Although the Globex system provides certain protections such as reasonability checks with respect to 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. 

       

      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 uncommercial conduct detrimental to the welfare of the exchange and will result in disciplinary action for violation of Rule 432 (“General Offenses”).  Additionally, the Globex Control Center may adjust or bust trades that are deemed to negatively impact the integrity of the market.

      Questions regarding this Advisory Notice may be directed to one of the following individuals in Market Regulation: 

       

      Robert Sniegowski, Associate Director, 312.341.5991

      Richard Schell, Associate Director, 312.341.3124

      For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or news@cmegroup.com.

       

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