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These Kinds Of Market-Rigging "Practices" Will No Longer Be Allowed On The CME
It has been an interesting week for the CME: first it was revealed a week ago that in order to "stimulate" the market, the CME is willing to pay central banks a liquidity rebate in order for the world's monetary authorities to "make markets" in the most important S&P 500 future, the E-Mini, confirming not only that central banks directly trade the S&P 500, but are incentivized to nudge it along the preferred central bank direction: up. Then last week, none other than the CME's own 10-K proved that something changed in 2013, when for the first time central banks officially became counted as clients of the biggest US derivative exchange.
Today, the CME's fall from efficient market grace accelerate when it advised the CFTC that the derivative market would be adopting a new Rule 575 to eliminate "Disruptive Practices Prohibited."
The good news: starting September 15, 2014 the CME will no longer tolerate what is affectionately calls "Disruptive market practices."
The bad news: the CME was not only tolerating and turning a blind eye toward such disruptive market practices until this point, in many cases it was compensating the "liquidity providing" perpetrators!
But what are these "disruptive" market practices? Nothing short of a who's-who lexicon of terms we introduced and discussed starting some time in late 2009 and 2010. From the CME:
Among other disruptive practices, Rule 575 prohibits certain of the disruptive practices added to Section 4c(a) of the Commodity Exchange Act (“Act”) as subparagraph (5) by Section 747 of thee Dodd-Frank Act. Specifically, Rule 575 prohibits the type of activity identified by the Commission as “spoofing,” “quote stuffing practices” and the disorderly execution of transactions during the closing period.
That's just a sample: here is the exhaustive list:
Some examples of manipulative behavior in practice:
- A market participant enters one or more orders to generate selling or buying interest in a specific contract. By entering the orders, often in substantial size relative to the contracts’ overall pending order volume, the market participant creates a misleading and artificial appearance of buy- or sell-side pressure. The market participant places these large orders at or near the best bid and offer prevailing in the market at the time. The market participant benefits from the market’s reaction by either receiving an execution on an already resting order on the opposite side of the book from the larger order(s) or by obtaining an execution by entering an opposing side order subsequent to the market’s reaction. Once the smaller orders are filled, the market participant cancels the large orders that had been designed to create the false appearance of market activity. Placing a bona fide order on one side of the market while entering order(s) on the other side of the market without intention to trade those orders violates Rule 575.
- A market participant places buy (or sell) orders that he intends to have executed, and then immediately enters numerous sell (or buy) orders for the purpose of attracting interest to the resting orders. The market participant placed these subsequent orders to induce, or trick, other market participants to execute against the initial order. Immediately after the execution against the resting order, the market participant cancels the open orders.
- A market participant enters one or more orders in a particular market (Market A) to identify algorithmic activity in a related market (Market B). Knowing how the algorithm will react to order activity in Market A, the participant first enters an order or orders in Market B that he anticipates would be filled opposite the algorithm when ignited. The participant then enters an order or orders in Market A for the purpose of igniting the algorithm and creating momentum in Market B. This results in the participant’s order(s) in Market B being filled opposite the algorithm. This conduct violates Rule 575.A., as the orders in Market A were not intended to be executed, and Rule 575.B., as the orders in Market A were intended to mislead participants in related markets. If the conduct resulted in a disruption to the orderly execution of transactions, it may also violate Rule 575.D.
- A market participant places large quantity orders at the beginning of the pre-opening period in an effort to artificially increase or decrease the IOP with the intent to attract other market participants. Once others join the market participant’s bid or offer, the market participant cancels his orders shortly before the no-cancel period, which is a predetermined time before the trading session opens when orders can be entered but not cancelled or modified. Consequently, those other market participants did not have an opportunity to react to the cancelled bids or offers prior to the open when their orders became executable.
- During the pre-opening period on CME Globex, a market participant enters a large order priced through the IOP (a bid higher than the existing best bid or an offer lower than the existing best offer) and continues to systematically enter successive orders priced further through the IOP until he causes a movement in the IOP, which prompts him to cancel all of his orders. The market participant continues to employ this strategy on both sides of the market for the purpose of determining the depth of support at a specific price level for the product before the market opens.
- During the pre-opening period on CME Globex, a market participant enters an order priced through the IOP (a bid higher than the existing best bid or an offer lower than the existing best offer) for the purpose of identifying hidden liquidity (e.g., resting stop and iceberg orders). The market participant then cancels that initial order and enters a new order based on the information obtained.
- A market participant enters a large number of orders and/or cancellations/updates for the purpose of overloading the quotation systems of other market participants with excessive market data messages to create “information arbitrage.”
- A market participant enters order(s) or other messages for the purpose of creating latencies in the market or in information dissemination by the Exchanges for the purpose of disrupting the orderly functioning of the market.
- A market participant enters a large aggressor buy (sell) order at the best offer (bid) price, trading opposite the resting sell (buy) orders in the book, which results in the remainder of the original aggressor order resting first in the queue at the new best bid (offer). As the market participant anticipated and intended, other participants join his best bid (offer) behind him in the queue. The market participant then enters a large aggressor sell (buy) order into his now resting buy (sell) order at the top of the book. The market participant’s use of CME Group’s Self-Match Prevention functionality or other wash blocking functionality cancels the market participant’s resting buy (sell) order, such that market participant’s aggressor sell (buy) order then trades opposite the orders that joined and were behind the market participant’s best bid (offer) in the book.
Well, this is a problem, because the examples above cover about 99.9% of all "practices" in today's market, period.
And, as a reminder, in addition to the CME's favorite and most lucrative client, HFTs of course, the ban will also apply to that other segment of CME clients: central banks.
So yes, dear CME market-rigging clients: for years and years, the various form of market manipulative and rigging activity was not encouraged, and in the cases of central banks, even compensated. But now, 6 years after Lehman, it is frowned upon. So no more rigging and manipulation: now everyone please pinky swear and so on.
Full Rule 575 below:
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So what?
Machines are not people.
FUCK THE CME< FUCK THE FED< FUCK THE BIS< FUCK THE ZIOS
RIPS
Too funny and here I thot they were legit........ now its all fixed......LMFAO
Machines are not people, but don't forget, corporations are.
So does this mean we can now rescind the old adage “There is no honor among thieves”?
Aka, dont steal, the government hates competition.
Aren't all those practices part of EVERY trader's toolbox?
Traders will disappear the way blacksmiths did at the beginning of 20th century.
Meet the new rules, same as the old rules. How long will it take for someone to circumvent these new "suggestions", if they are even implemented and enforced?
It will be interesting to see what the volume levels will be after September 15, 2014, when this rule goes in effect.
this is an onion piece right? next thing they will say the trade must have a 10 second delay before transactions.
Next they will incorporate the uptick rule
Next they will put an end to naked short selling
Capitalists need rules. Why? Most are greedy bastards. Without rules, the good ol' USA turns into Bangladesh. Our children are back to cleaning factories for .25 cents an hour.
Can CFTC read this stuff with a straight face? They're kidding, right???
Bullish?
Oh, just go away. And take your asinine blog with you.
Someone should press for clarity on the loophole where it repeatedly says "person". A push should be made to even change the wording to say no person, firm, or trading algorithm. And then some official standard of how to measure said compliance/violations should be listed.
good idea^
didnt the supreme court rule algos are people...they would.
all people are created equal, but some corporations are more equal than people
Simulations need immersion
How about running stops?
Oh, that's already fourteen kinds of illegal.
Tee hee.
Somebody tell these door closers that the horses are loooooooooong gone.
You mean all of that shit was perfectly OK before?
LMAO.
And we have it on the word of the CME they will enforce these rules, so it's all good dog.
<Not to mention allowing 'other' unspecified processes to continue/be created. For the children of course.>
Oh they will be enforced.... selectively. Those who are out of favor or lack the firepower (i.e. small guy) will feel the wrath. The squid and the big boys will go along like nothing ever changed.
Exactly. This is an attack on the "copycat" algos which sprang up to mimic the success of the large institutions' methods. Only those who are above prosecution are allowed to engage in these activities. They will be unaffected, as a law is only good when enforced.
That was my thought too... There's no shortage of law out there, just a shortage of will and cajones to enforce.
Trading strategy summary: short will and cajones!
There are way too many laws out there and they are not applied evenly.
There is a big difference between a system of law and a legal system.
When laws are applied asymmetrically, the legal system does more harm than good.
At least the 'connected' are protected and the lawyers paid.
So all's well.
All you have to do is convince cops that the 1% are stealing their pensions.
They will lead the revolution.,
Robbing the plebes is ok. Robbing the centtal banks is not.
Machines have Operators. Its not the weapon that kills, at least as long as Googles knowledge vault did not rename itself to Skynet... ;)
How are they going to enforce this?
If you put in a sell order for five shares of TLT then after you placed your sell order for the five shares of SPY on the other side causing the market to move filling your TLT if you cancel your SPY expect a threatening letter. And or a swat team at your door as clearly that is financial terrorism and a crime against humanity.
Prop firms with zero losing days in 2014 are just good though, nothing to see there move along.
They're not. It's for show.
The amount of cynicism on this board is appalling, I tell you. Appalling. /sarc
By covering their ears and their eys, like the little brass monkeys on your mantle; see no evil, and hear no evil.
Machines have no "intent", therefore these new rules won't apply to them.
The language says, "no person will enter or cause to be entered."
That covers computers. And corporations are people too.
If enforced, HFT just went poof, or a good chunk of it.
You funny guy. Corporations are people when they need to be and not people when they need to be.
They are after all writing the tax code.
Persons are not people unless rules, statutes and laws specifically include the natural person. If it does not say people or natural persons, it excludes them. Supreme court ruling.
So, yucking aside, if this is actually enforced and isn't just more Wall Street Bullshit...does it make the market more honest?
Yeah, I know, proof is in the pudding and we'll all have to stay the fuck away from anything related to the market until it gets honest.
But is this a step in the right direction?
AND...
If it is, how far down will the market fall as a result?
Machines are not people ??? Give it time. I can see visualize the benchmark SCOTUS case now:
iPhone 5 vs United States.
That depends on what the defintion of is is... right?
And if you believe this I got a bridge to sell you.
And by the way where is John Corzine?
To help you locate Mr. Corzine, we can eliminate any institution of incarceration as one of his locations.
Just look for a guy with a lump in his throat.
And I got a bridge too. Bring gold or silver.
There, that should take care of the problem. My trust in the markets is restored.
/SARC
A very simple way to see if this is for real or just yet another obfusication.
If volume drops to zero on September 15th, you will know this is for real.
To me this looks like the CME lawyers trying to cover their clients' asses.
That was my first thought. But they are allowing this type of fraudulent activity continue until September 15th. So Gold will continue to get slammed hard this week.
In my opinion CME Group is about to be sued out of existence. Something is happening beneath the waves for them to come out and take an action as this. So it is far too little and much too late.
Jeffery Christian needs to spend the rest of his life in jail sharing a cell with a homosexual named Bubba...who likes having tossed green salads.
Have fun tounging someone else's asshole Jeffery Christian. His ass will be uncovered and widened by Bubba.
Yes. Hell can happen on Earth.
Don't know what salad tossing is all about but the new exchanges (Shanghai - Hong Kong) are drinking CME-Comex' milkshakes. The CME_Comex have become fake exchanges where paper manipulation of price is the goal and not the meeting of buyers with sellers. Asian exchanges will cause to be stripped the fake paper exchanges of their cover as they lose all real business.
This is pre-emptive positioning, which is what CME's business model has always been about.
Exactly! These bottom dwelling scum-puppies could care less, all of a sudden, about right or wrong - this is about them finally being exposed and there being a legitimate alternative....simply about self-preservation now that the jig is about up, about trying to stay in the game - nothing more; afterall, necessity is the mother of invention. Can't wait to see how this plays out...like others though, I find it hard to believe there will be anything but selective enforcement...unless they simply have no choice. This nation, to an ever increasing degree, and especially those with their hands on the levers of power, have long ago lost any sense of or committment to virtue....plain and simple; as men and nations sow, so shall they they reap thereof.
I don't believe anything will change because of a law. We have a constitution of the United States of America and bankers couldn't care one bit. Its only use is as a trick to be played on sheeple.
Just a pen and phone and Obama makes the law he wants.
It's not a "law", you cretin, it's an exchange rule, with which you have to comply if you want to participate on that exchange.
Oh, and -1 for "sheeple". Acting smug and superior to all those unenlightened others is ugly enough when done by someone who actually has a clue.
done and done. lulz
Conspicuous by its absence is the lack of a prohibition of one's dog or cat making any of the "person" prohibited orders.
I'll agree to believe all these high minded provisions will be faithfully policed, if you agree to believe my cat reads Shakespeare in his spare time.
So, is Sep. 15 when all of the liquidity dries up and the nightclub fire starts?
Got the 16th circled on my calendar.
I am the quite magician: now you see me, now you don't! I have nothing up my sleeve. I say the words Hockus Pockus and presto!: I pull an order for 100k contracts out of a hat! And then make it disappear! I am a master of illusion and disguises.
And, if they do not follow the rules what is the punishment????? Another slap on the wrist, tough talking to? This seems meaningless without teeth.
Cufflinks can be helpful.
I hope I live long enough to see hand-cuffs
What about all the money that was stolen from me while trading Future Markets for the last 3 years?
Doesn't the CME proof read their memos? "Exhibit A" is missing a </sarc> tag.
Complete BS. They won't enforce. Window dressing for more nonsense in the $gold $silver markets.
fortunately, the rest of the world is turning away and instituting actual "markets" once again in the precious metals.
we've reached quite a place where China has more honest commodity markets than US.
Quite a place.
In all candor -
Could it be that the release of news about catering to Central Banks as clients could have backfired in the past few days and most of the last traders are now leaving/closing out positions?
The simple truth is that if you find out you are gambling/trading against a printing press, YOU GET OUT! Was there enough damage to the brand that they are now forced to rebuilld a reputation if not a true market of some kind?
Wishful thinking? Damn straight, but I'm still thinking about it.
Worth repeating my favorite saying, because it applies to almost every discussion on these topics:
"It's not a market. It's a crime scene."
The price of gold and silver will not be allowed to rise as long as central banks are allowed to MANIPULATE the market, and don't fucking kid yourself that they won't.
That they are even allowed to participate is a sign of no confidence in the present scheme of things.
I don't see any ban on collusion either.
The CME is in a bad spot. No matter what they do, there is physical delivery required or they go out of business. The physical component will always be there, no matter who is hanging paper. The can see that HFT and others trade as if there is no delivery and a default is looming. It almost happened in 2011. Now GLD and SLV are empty and there is no safety net for the next run. They need to tamp down the nonsense before it takes them out and exposes there no insurance, no inventory, all paper, fly by night casino, like Corazine did.
Rules without penalties and enforcement are "intent" too.
This is like Yellen saying: "we shall no longer rob intentionally".
We just need a Fed exclusion rule....
I , contrary to everyone else believe that this is all on the up and up. No more market rigging. In fact, all the bankers who had done that before are all going to come out with their hands up in the air and ask us all for forgiveness. And then they are going to let Bernie Madoff out of jail because he cried and said he was sorry. Since they have had most of these rules before anyway what they forgot to include is enforcing them. My belief as to why this is coming out now is because of the Shanghai and Dubai and Singapore competing exchange opening the week after.
Good luck enforcing those rules. While quote stuffing and latency arbitrage is indeed bad, all other examples are, frankly, fair game trades against dummies. So WTF CME?
I don't get it.
I must be missing something.
Who is "No Person"?
I've heard of Some Person, Many Persons, and A Person.
But I've never heard of No Person.
Maybe some of the good folks who run the HFT algos have heard of Mr. No Person.
Corporations are people, so guess they can't either, huh?
But why say these things. These practices just don't happen ... right?
But ..but, what will happen to liquidity?
It was pissed away a long time ago, eh?
Maybe they don't want to be blamed when the proverbial stuff hits the fan!
Its been a good run.
lol, if you cant do any of those things, might as well not trade, do something else like take ludes and host a cnbs morning & evening show like Kramer.
If you are in this market at this point and time, and you lose your money, well, I don't know what to say to you.
THEY ARE LIARS AND THEIVES AND THEY WANT YOU TO COME AND PLAY!
OH WORRIERS? COME OUT AND PLAAAAAAY!!!
OH WORRIERS, COOOME OUT AND PLEAAAAAAAAAAY!!!
[CLINK, CLINK, CLINK, CLINK {the sound of your change being shaved with each trading pass}] [{snivel}]
Great movie while i was in my youth
I hope so, but, I'll believe it when I see them enforce it.
Is CME going to review and test every algo before it can be used?
I used to speculate of the floor of NYMEX, the people upstairs doing the policing were the biggest thieves and crooks in the building, anything we did paled in comparision. They should have used a mask and a gun.
I traded in almost every pit for 20 years when the exchanges were in the WTC. The pits were loaded with enough thieves that those trying to trade and could not took to stealing what they could. Trading is difficult and stealing is easy. They biggest "holy men" screaming about others were the biggest thieves. And no one at the CFTC really gave a damn except for some bigger cases nailing Charlie Federbush and Preston Semel on COMEX before the sale to NYMERC. You can go to the CFTC page and look them up under "Enforcements". The guys in the office absolutely were as bad. Tell themn your book or you don't get any business. Things got so bad guys rebated the floor brokerage for business to have the orders to rip. The whole business stinks, and this administration has been the biggest crooks through malfeasance and allowing it with machines.
It's all great when you are the first to use these techniques but once everyone left in the "market" is using these techniques, the market becomes a game of tic-tac-toe where no one wins.
In summary, buy gold.
Buy gold? During a debt implosion and deflation if the Dow is under 10,000? I'll hold the physical I have of 8% of net worth and leave it at that.
On "debt implosion" see my comment http://www.zerohedge.com/news/2014-09-03/austrian-bill-gross-discusses-c...
It has become a well-tested economic tenet that adding money slows velocity (which you failed to address) effectively doing nothing. We have 5 years now behind us to make that point valid. Assets were bought, as per the Financial Times and reported here, to the tune of $29.1 Trillion. The mkt is far out of any relationship with fundamental but a Fed whistleblower (also posted here) reported they own the financial media and every economist who wants to work on Wall Street. This ends badly, and it could be with a debt implosion as the Lender of Last Resort in the world, The Fed, becomes seen as impotent. Throwing a drowning man water does nothing for him. Deflation can occur and it can be quite rapid just as those in the Weimar Republic couldn't believe the inflation that hit them.
That's kind of funny, to state "deflation can occur quite rapid" but then you only are able to supply an example of massive inflation?
Money Velocity is a bullshit concept, a self-referential "explanation" after the fact.
You must be willfully blind to not see that TPTB are increasing the amount of lies (including bending and breaking of every kind of rule and law) faster than they are adding money AND they will not stop.
Deflation occurs only if the truth comes out because rules are followed (on bookeeping, bankruptcy etc.) - but in early 2009 the decision has been made to disable those rules for all bigger entities, and since then we onto the races of complete fiat currency destruction.
Buy gold? During a debt implosion and deflation if the Dow is under 10,000? I'll hold the physical I have of 8% of net worth and leave it at that.
This will be meaningless. The HFTs target individual stocks and this very site featured an article 2 years ago where NANEX showed that hitting 7 stocks in the DOW with bids made the mkt fly much higher in an instant. Until latency at all exchanges is instituted to stop flash orders (primarily bids have got us here) this continues.
Nothing to see here....move along.
Ways around these rules must already exist.
These kinds of market-rigging practices will no longer be allowed on the CME for those whose volumes are irrelevant anyway.
So let me get this straight. They're going to stop screwing the little guy in order to bring an honest market? Like I won't come in your mouth, but if I do it will make your tits bigger?
As if.
I'm so glad the dumping of 10 thousands of naket short contracts within seconds/minutes in the PM pit is finally going to stop... /sarc
Read again they talk about "... No ___PERSON___" Computers not mentioned.
To say the market is rigged is an understatement. After over 30 years of trading commodities I will flat out state without any reservations that lies and manipulation run rampant. If you think anyone is looking out for the small independent trader you are wrong. An unholy alliance of the Federal Reserve, the government, and the too big to fail has left the rest of us in a precarious position.
For the big boys, its insider information and computer trading, this includes computing patterns that exploit where stops are placed, this improves their ability to wash the weak out of their positions. The bottom-line is that the higher the market goes the more vulnerable it becomes to a major collapse and sudden downward move. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/07/markets-more-lies-and-munipulatio...
AMEN brother.
As Carlin said, "Its a big club, and you ain't in it."
Cue the class action lawyers.
This is the big beginning. The elites have sobered up and back at work reforming the system and sorting things out. The USA is coming back. It's morning in America,again.
This shit makes me sick.
Obviously these methods are now out dated. Better rigging on the way!
Other manipulative proactices are legalized!?
Comex in New York, that give discounts to central banks and governments for surreptitious trading whose purpose can be only to manipulate markets, has told the U.S. Commodity Futures Trading Commission that effective September 15 it will ban "spoof trades," "quote stuffing," and "disorderly execution of transactions during the closing period"
During the closing period, only?
Most of the price down crashes are during the trading day, and during the light after market hours. Prohibiting manipulation during the close will have little impact of overall price suppression.