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

      • To
      • Members, Member Firms and Market Users
      • From
      • Market Regulation Department
      • #
      • CME Group RA1304-5
      • Notice Date
      • 11 March 2013
      • Effective Date
      • 11 March 2013
    • This Advisory Notice supersedes CME Group Market Regulation Advisory Notice RA1002-5 issued on January 11, 2010. It is being reissued to remind market participants that they must exercise diligence and care in the creation of User-Defined Spreads ("UDS") on CME Globex.

      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, including the creation of covered option strategies. Last year, an enhancement was made to the algorithm responsible for allocating futures on such covered option strategies to ensure that resting covered combination orders are allocated an appropriate number of futures.

      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 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").

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

      Robert Sniegowski, Associate Director, Rules & Regulatory Outreach, 312.341.5991

      Erin Schwartz, Sr. Rules & Regulatory Outreach Specialist, 312.341.3083

      For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at 312.930.3434 or