CME Group published a new Market Regulation Advisory Notice governing the use of so-called “suspense accounts” used to submit orders into its Globex trade matching system and the requirements for the proper documentation of such orders.
Suspense accounts are typically used when orders for multiple customers are placed at one time without identifying the specific customers associated with the transaction. The customers are identified after-the-fact.
Officially, CME Group will authorize five circumstances where a suspense account may be used:
- orders entered by or on behalf of a so-called “Eligible Account Manager” with written discretion over the customers’ accounts. (EAMs include a Commodity Futures Trading Commission-registered commodity trading advisor or a Securities and Exchange Commission-registered investment adviser, among other persons; click here for a full list of EAMs in CFTC Rule 1.35(b)(5)(i));
- not held or “DRT” (disregard the tape) orders that are bunched for multiple customers subject to a written predetermined allocation methodology;
- orders subject to a written predetermined allocation methodology;
- multiple bunched market-maker orders subject to request for cross functionality to meet a single customer order; and
- orders entered by Execution Operations subject to de minimis usage.
Each of these circumstances is subject to express enumerated requirements. Moreover, no person may enter customer orders into a suspense account that is also used for personal or proprietary orders except for a commodity trading advisor that has permission of its customers.
Subject to CFTC review, CME Group’s new MRAN will be effective October 1, 2018.
Compliance Weeds: Typically, upon receipt, futures commission merchants, introducing brokers and members of contract markets must immediately prepare a record that identifies the specific customer placing an order and the time the order is received, among other information, if the order cannot immediately be entered into an exchange's trade matching engine. (Click here to access CFTC Rule 1.35(b)(1).)
However, an exception to this requirement exists for qualified bunched orders. Among other things, the person placing the order for post-execution allocation must have been granted written discretion by the customer and the order placer must be an EAM. Allocations must be made as soon as practicable after an entire transaction is executed; allocations must be fair and equitable; and the allocation methodology must be sufficiently objective to allow for independent verification of the fairness of the methodology by regulators and outside auditors. Certain recordkeeping requirements also apply. (Click here for further background in Interpretive Guidance by the National Futures Association.)
The CME Group’s new MRAN endeavors to comport the CFTC’s requirements with the practical aspects of order placement into Globex.