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You Better Know the Nuances

 

Market Conduct Update: Pre-Open Guidance

CME Group released a Market Regulation Advisory last week to provide guidance on Globex pre-open activity. The advisory, which becomes effective April 25, covers order entry practices, disruptive trade practices and wash trades.

The 26-page document is intended as guidance for all market activity during the pre-open period. It underscores that market conduct is a complex area filled with intricacies that can separate acceptable from prohibited activity.

For example: Orders entered during the pre-opening that are significantly above or below the displayed Indicative Opening Price (IOP) have the potential to cause aberrant price movements. If such aberrant price movements do occur the market participant placing such orders may be deemed to have violated CME Rule 575 (Disruptive Practices Prohibited).

Or consider this: If during the pre-open a market participant places bids that are significantly above the prevailing offer and places offers significantly below the prevailing bid, there should be a reasonable expectation that the resting orders may match when the market opens. Even if the buy and sell orders do not match against each other, the market participant may be deemed to have made an “indirect wash sale” in violation of CME Rule 534 (Wash Sales Prohibited).

Our Market Conduct course fleshes out these and many other complex issues in clear, straightforward language. It covers a lot of ground; view the course outline here.

To order Market Conduct training or to request corporate pricing, click here.  Discover why more than 1,200 firms, including most major FCMs, rely on Exchange Analytics for compliance training.