The Chicago Mercantile Exchange announced that in the fourth quarter of this year, it will introduce enhancements to its self-match prevention functionality on Globex to help prevent matching orders for accounts with common ownership. Among the improvements will be the ability to indicate which order should be cancelled in case of a match—the resting or the new order. Currently, the resting order is always cancelled. The use of the self-match prevention feature is optional on the CME; similar functionality is mandatory for proprietary traders with direct market access to ICE Futures U.S. who use algorithmic trading applications.
Compliance Weeds: Review of the specifications for this new CME functionality is a good opportunity to review prohibitions against wash trades both under law and exchange rules. There are nuanced circumstances when unintentional cross trades by different traders within the same organization may be deemed wash trades, so it is important to understand the subtle features of exchanges’ interpretations. Self-match prevention functionality aims to help take the guessing out of those circumstances. (Click here to see a summary of a CME guidance regarding wash trades in the article “CME (Finally) Issues Revised Guidance Regarding Wash Trades” in the November 18 to 22 and 25 edition of Bridging the Week.)