On August 28, 2014, the Chicago Mercantile Exchange Inc., the Board of Trade of the City of Chicago, the New York Mercantile Exchange, Inc., and the Commodity Exchange, Inc. (collectively, the “CME”) submitted a notice of a rule adoption to the Commodity Futures Trading Commission (the “CFTC”) regarding new Rule 575, titled “Disruptive Practices Prohibited,” that will become effective September 15, 2014.  The CME also issued Market Regulation Advisory Notice RA1405-5 (“CME MRAN”) which, with new Rule 575, provides regulatory guidance on various types of prohibited disruptive order entry and trading practices.  The prohibited disruptive trading practices specified in new Rule 575 will supplement existing CME exchange rules including Rules 432.B.2, 432.Q, and 432.T.1

The CME MRAN notes that Rule 575 prohibits certain of the disruptive trading practices prohibited under Section 4c(a) of the Commodity Exchange Act (“CEA Prohibited Trading Practices”).  The CEA Prohibited Trading Practices are:

  • violating bids or offers;
  • demonstrating intentional or reckless disregard for the orderly execution of transactions during the closing period; and
  • conduct that is commonly known to the trade ad “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution).

The CFTC previously issued interpretive guidance concerning CEA Prohibited Trading Practices.2  Set forth below is a table that summarizes the most significant aspects of the new Rule 575, the additional guidance from the CME MRAN, and comments on the practical impact of the provisions of the new CME Rule.

Click here to view table