Disruptive Trading Practices Regulation
|FINAL GUIDANCE: Interpretive Guidance on disruptive trading practices approved at CFTC Open Meeting, May 16, 2013|
|Proposal Date||Comment Deadline||Effective Date|
|March 18, 2011||May 17, 2011||May 28, 2013|
Section 747 of the Dodd-Frank Act specifically prohibits certain disruptive trading practices, which is defined as any practice that:
- violates bids or offers;
- demonstrates intentional or reckless disregard for orderly execution; or
- is of the character of, or is commonly known to the trade as, “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution).
On October 26, 2010, the commission first addresses the issue of disruptive trading practices. An advance notice of proposed rulemaking (ANPR) was approved at the meeting, and entered the Federal Register on November 2, 2010. The ANPR solicited comments from the public to address 19 questions, including:
- distinguishing between orderly and disorderly trading practices;
- defining "orderly execution;"
- defining and distinguishing "spoofing" from legitimate market practices; and
- if and how to hold accountable a market participant who violates orderly market practices.
On December 2, 2010, the CFTC held a staff roundtable on disruptive practices. Panelists included representatives of U.S. financial exchanges, traders and brokers, industry associations, academic institutions, and regulators. Among the comments from the roundtable panelists:
- concern about the vagueness of the provisions and ambiguity of the standards;
- difficulty in determining whether a bid or offer is violated in the over-the-counter (OTC) market;
- no common definition of "spoofing;"
- executing brokers may not be able to discern customers' intent; and
- concern that new rules may stifle innovation.
After taking into consideration the comments from letters and roundtable panelists, the commission decided that, rather than issue a final rule proposal regarding disruptive practices, the regulator would instead issue an interpretive order; an addendum to existing rules. When final, the interpretive order would have the same legal force and effect as a final rule. The final order was approved at the CFTC Open Meeting, May 16, 2013.
Northwestern Law School professor emeritus David Ruder talks to editor/producer Nicole V. Rohr about his experience as SEC chairman during Black Monday in 1987, and also about what stemmed from the subsequent flash crash in May 2010. Ruder was a part of the President's Working Group on Financial Markets in 1988 and more recently worked on the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues. He discusses findings and changes to rules surrounding circuit breakers, dark pools and naked access. Published February 27, 2012. For more video, visit MarketsWiki.tv.
- Open Meeting on Twelfth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on February 26, 2011.
- CFTC Staff Roundtable on Disruptive Trading Practices. CFTC. Retrieved on March 23, 2011.
- CFTC issues preliminary rules on swaps clearing, disruptive trading practices. Willkie, Farr, & Gallagher, LLP. Retrieved on March 23, 2011.
- CFTC Seeks Comments on Trading Practices. Thomson Reuters. Retrieved on March 23, 2011.