ICE Futures U.S. issued a revised Wash Trade FAQ to additionally address, among other topics, unintentional matching of buy and sell orders from the same principal, as well as the exchange’s self-match prevention technology. In general, IFUS prohibits any person to execute a wash sale (click here to access IFUS Rule 4.02(c)). A wash sale (or wash trade) is a transaction or series of transactions executed in the same commodity contract at the same or similar price for accounts with the same principal on both sides. At IFUS, the same principal means “accounts that are owned by the same person, entity or a parent and its 100% wholly owned subsidiary or subsidiaries that are wholly owned by the same parent and shall also include accounts that have common ownership that is less than 100%.” IFUS’s FAQ makes clear, however, that buy and sell orders that are placed by independent decision makers for accounts that reflect the trading of separate business units of the same principal that coincidentally match would not be considered a violation of IFUS’s wash sale prohibition. However, in such instances, “the parties to the trade must be able to demonstrate the independent control of the accounts and that the transaction had a bona fide business purpose for each party to the trade.” On the other hand, IFUS indicates that if orders entered for a single automated trading system or various ATSs controlled by the same individual trader coincidentally match, resulting trades “may” be considered prohibited wash sales if such matching occurs “on more than an infrequent basis.” Currently proprietary traders who access IFUS directly using algorithmic trading applications are required to use the exchange’s Self-Trade Prevention Functionality to help avoid such unintentional matches.
Compliance Weeds: All US futures exchanges (in addition to ICE Futures U.S.) as well as the Commodity Futures Trading Commission, prohibit wash sales. Generally, where available, exchange guidance on wash sales is similar. However, unlike on IFUS, where the use of self-trade prevention functionality by algorithmic proprietary traders directly accessing the exchange is mandatory, it is optional on some exchanges (e.g., CME Group and CBOE Futures Exchange). (Click here to access CME MRAN RA1411-5RR:Wash Trades Prohibited (January 2, 2015) and here to access CFE Regulatory Circular RG14-o11: Self-Trade Prevention (March 26, 2014).)