Nadex modifies and clarifies rule for limiting trading privileges

Maria Nikolova

The aim of the amended Rule 3.6 is to allow Nadex to limit trading privileges in instances where, although no Rule violation that could lead to disciplinary action has occurred, limitation is necessary to reduce risk, or protect the Exchange, the market, and its Members.

Earlier this month, North American Derivatives Exchange, Inc. (Nadex), a part of IG Group Holdings plc (LON:IGG), filed a submission with the United States Commodity Futures Trading Commission (CFTC) over proposed changes to its Rule 3.6 (Rejection of Applicant). As reported by FinanceFeeds, the planned changes seek to permit Nadex to limit trading privileges in instances 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.

On April 21, 2017, Nadex filed a modification to that submission with a couple of specifications:

  • an individual whose trading privileges have been limited with regards to the amended Rule will be provided the reason for the limitation in writing;
  • language has been amended to cover intermediated clients.

In addition, Nadex submitted a Q&A clarifying the Rule.

The document explains that Nadex already has the ability to limit trading activity during an enforcement action and/or as the result of formal disciplinary action. Formal disciplinary action, however, is not appropriate in all instances, according to the Exchange. Moreover, the Exchange Rules cannot enlist (and thus cover) all possible instances where certain activities may prove detrimental to the business, or presents a risk to Nadex staff or its Members. Also, not all forms of activity for which Nadex deems it necessary or appropriate to restrict trading privileges may present a risk to the industry in general, rather this harmful activity may be specific to Nadex and may not warrant permanent public posting with the National Futures Association, along with the ramifications that stem from such disclosure.

Possible cases when the amended rule will be applied include (but are not limited to):

  • an individual making verbal or written threats to Nadex and/or its staff;
  • an individual submitting an excessive number of emails or phone calls to Nadex;
  • an excessive number of minimal deposits or withdrawals being made throughout the trading day;
  • Nadex receiving information that would have led to the denial of a Member’s application (or approval of an Authorized Trader) had the information been previously known.

The period of time for limiting the trading privileges will be determined by the Compliance Department and will depend on the severity of the matter. Nadex expects that the amended Rule will be exercised only on an occasional and infrequent basis.

Anyone who has had trading privileges limited in line with Rule 3.6 may request the CEO of Nadex to review the decision. The CEO’s decision on the matter will be final.

In case the CFTC has no objections with regards to the proposed changes, the amended Rule will take effect on April 25, 2017.

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