Nadex aims to tackle disregard for orderly transactions execution during closing period

Maria Nikolova

Nadex plans to change its Prohibited Transactions and Activities rules to prohibit the intentional or reckless disregard for the orderly execution of transactions during the closing period.

North American Derivatives Exchange, Inc. (Nadex), a part of IG Group Holdings plc (LON:IGG), is seeking to tackle a wider range of malignant activities.

In a notice, submitted to the United States Commodity Futures Trading Commission (CFTC) on Friday, the Exchange unveils its intent to amend its 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.

After the changes, Rule 5.19 (w) will state:

“No Person shall engage in any activity that constitutes fraudulent or abusive trading, including but not limited to violating bids or offers; demonstrating intentional or reckless disregard for the orderly execution of transactions during the closing period; or spoofing.”

The Exchange is also seeking to clarify its authority when it comes to adjusting trading prices or canceling trades. Nadex has the right to do so in order “to mitigate market disrupting events caused by malfunctions in its electronic trading platform(s) or errors in orders submitted by members and market participants.” The circumstances in which this authority will be exercised are limited. The Exchange may cancel a trade in a Spread Contract in case of the so-called “Erroneous Trade” – when the execution is at a price that is inconsistent with prevailing market conditions due to improper or erroneous orders or quotes being matched on the Market. Concerning Binary Contracts, Nadex will generally not cancel or adjust an Erroneous Trade except in extraordinary circumstances.

In case the CFTC has no objections, the proposed changes will come into effect on July 3, 2017.

The latest proposals for Nadex’s rule amendments are in tune with the strict stance of the Exchange towards actions that pose risks to the market and/or its Members. In April this year, Nadex proposed amendments to its Rulebook that would permit it to limit trading privileges in cases where, although no Rule violation that could lead to disciplinary action may have occurred, Nadex has deemed the limitation is necessary to cut risk and protect the Exchange, the market, and/or its Members. These extra restrictions would concern cases where an individual makes verbal or written threats to Nadex and/or its staff, an individual submits an excessive number of emails or phone calls to Nadex; an individual makes an excessive number of minimal deposits or withdrawals throughout the trading day, etc.

Cantor Futures Exchange has also sought to amend its rules regarding trading privileges. In May this year, Cantor submitted proposals to the CFTC with regards to CX Rule III-6 and CX Rule VII-18. CX Rule III-6, which allows the Board of Directors of the Exchange to suspend, revoke, limit, condition, restrict or qualify the trading privileges of a participant or an authorized trader if such an action is in the best interests of the Exchange, was proposed to be removed, as CX is concerned that the rule might be misunderstood or misapplied.

The Exchange proposed to amend CX Rule VII-18 to make clear that any action to deny access should be taken only if the immediacy of such an action is vital. For example, to address issues relating to the integrity of the operation of the Trading System.

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