CFTC staff finalizes guidance on anti-disruptive trading practices

Abstract

Purpose

The Dodd-Frank Act added a number of prohibited trading practices on futures markets and swap execution facilities. In May 2013, the CFTC issued guidance on how it intends to interpret these prohibitions. Persons trading on these facilities should understand the guidance and how it affects their trading activities. This article aims to focus on the issues.

Design/methodology/approach

The article analyzes the prohibitions and the CFTC's related guidance using a question and answer format to make it accessible to affected market participants.

Findings

The new trading prohibitions include spoofing, violating bids and offers, and recklessly disregarding an orderly close. Different standards of scienter (state of mind) apply to each. Intent is required to violate the anti “spoofing” provision; recklessness is required to violate the disregarding the orderly close provision, but no finding of intent is required for violating bids or offers. The CFTC will evaluate the facts and circumstances at the time of the conduct and look at the available information and what the person knew or should have known.

Practical implications

The Guidance is applicable to all persons who trade on futures markets or on the coming swap execution facilities (SEFs). In particular, persons trading on these facilities should be aware that certain trading practice prohibitions may be violated without a finding of intent.

Originality/value

The antidisruptive prohibitions and guidance are new. Market participants will need to understand and take care to ensure that their trading conduct does not run afoul of these new provisions of the Act and the Commission's interpretive guidance thereunder.

Citation

M. Architzel, P., C. Bernstein, G. and Ayalew, M. (2013), "CFTC staff finalizes guidance on anti-disruptive trading practices", Journal of Investment Compliance, Vol. 14 No. 4, pp. 44-47. https://doi.org/10.1108/JOIC-10-2013-0037