On January 14, 2015, the Intercontinental Exchange (“ICE”) rule prohibiting disruptive trading practices (ICE Rule 4.02) became effective.  The ICE Rule is substantively the same as Rule 575 passed by 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”), which became effective September 15, 2014.  The CME issued Market Regulation Advisory Notice RA1405-5 (“CME MRAN”)[1] which, with new Rule 575, provided regulatory guidance on various types of prohibited disruptive order entry and trading practices.  On September 11, 2014, the Futures Industry Association (“FIA”) hosted a webinar with staff from the CME to discuss new Rule 575 and the CME MRAN.  ICE has followed suit, issuing FAQs along with the new rule to provide further guidance around ICE Rule 4.02 and participating in a webinar hosted by FIA to discuss the rule and answer questions.  The new CME and ICE rules follow the Commodity Futures Trading Commission’s (“CFTC”) finalization of Antidisruptive Practices Authority in May 2013 (“Guidance”)[2]  The CFTC’s Guidance was issued to provide further clarification around Section 4c(a) of the Commodity Exchange Act (“CEA Prohibited Trading Practices”), which was added per Section 747 of the Dodd-Frank Act.  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 as “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution).

This Clients & Friends Memo updates our previous memo on this topic that covered CME Rule 575 and provides a comparison of the CFTC guidance, the CME Rule and the ICE Rule.  Set forth below is a table that summarizes the most significant aspects of the CFTC guidance and the new ICE and CME Rules, additional guidance from the ICE FAQs and CME MRAN, and comments on the practical impact of the provisions.

Please click here to download the CME and ICE comparison chart.

[1]   On September 15, 2014, CME issued an updated MRAN with “minor modifications” based on CME’s discussions with the CFTC.

[2]   See Antidisruptive Practices Authority, 78 Fed. Reg. 31890 (May 28, 2013).  Note that during FIA’s webinar, the CME emphasized that Rule 575 is a codification of CME’s existing rules and is designed to provide guidance as opposed to establishing new substantive obligations.  Therefore, it is possible, but we believe unlikely, that the CME may pursue “disruptive” conduct that predates September 15, 2014 under Rule 432.  Although the CME reminded market participants that new Rule 575 is not an exhaustive list of trading practices that could violate the exchanges’ rules and that market participants still could face liability under the more general requirements in CME Rule 432, CME said that it “did their best” to incorporate disruptive trading practices in Rule 575.  Because Rules 432 and 575 do not completely overlap, market participants should remember that they still need to comply with Rule 432.