Nadex aims to amend Order Entry rules to prevent disruptive activity

Maria Nikolova

Any Member submitting orders to Nadex must ensure adequate controls are in place to prevent excessive messaging or other activity that may be deemed detrimental or disruptive to the Exchange.

North American Derivatives Exchange, Inc. (Nadex), a subsidiary of IG Group Holdings plc (LON:IGG), is seeking to amend its rules in a way to prevent any malicious activities on the Exchange.

Earlier this week, Nadex has made a submission with the United States Commodity Futures Trading Commission (CFTC), announcing its intent to change Rule 5.5 (Order Entry). Under the proposed amendments, the rule will feature a requirement for adequate messaging controls to prevent disruption to the Exchange.

The proposed text to be added to the Rule states:

“Any Member submitting orders, or any other messages directly to the Exchange, including but not limited to messages related to the cancellation or amendment of an order, whether manually or via automated functionality, must ensure adequate controls are in place to prevent excessive messaging or other activity that may be deemed detrimental or disruptive to the Exchange”.

The announcement about the planned rule changes comes shortly after the CFTC released the results of a Rule Enforcement Review of Nadex. The regulator gave the Exchange a clean bill of health, however, it also made a number of recommendations, including:

  • Nadex should promptly complete its development of a surveillance program to detect spoofing on its markets. Nadex should provide the Division with a written description of the Exchange’s spoofing detection program once it has completed its development of such program.
  • Nadex should consider whether its staff and resources are sufficient or properly allocated to detect and investigate potential trade practice violations.

In June this year, FinanceFeeds reported of changes planned by the Exchange for purposes of tackling malignant activities. Nadex amended the Rule concerning Prohibited Transactions and Activities in order to prohibit the intentional or reckless disregard for the orderly execution of transactions during the closing period.

Later in June, Nadex unveiled changes to its Rule 5.5 for order entry. The changes included the implementation of an order rate limiter functionality that caps the maximum number of orders submitted to Nadex per a given period. The key aim of the new functionality is to prevent a risk of harm to the Exchange.

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