CME Group resubmits plan to update rules blocking wash trades

CHICAGO, July 11 Thu Jul 11, 2013 12:08pm EDT

CHICAGO, July 11 (Reuters) - CME Group Inc, the world's largest futures exchange operator, has resubmitted to U.S. regulators a plan to update its rules prohibiting wash trades after pushing back the provisions' start date.

CME, in a letter this week, asked the Commodity Futures Trading Commission to approve new guidelines for implementation on Sept. 9.

The rules are "basically the same" as a previous plan CME had proposed to start July 1, CME spokeswoman Laurie Bischel said on Thursday. CME shelved the previous plan last month following discussions with CFTC staff and criticism from Bart Chilton, a member of the commission.

With the new submission, CME has abandoned its effort to update its guidelines on wash trades without prior approval from the CFTC. Exchanges can implement some non-material rule changes without an in-depth review from the commission under a process known as self-certification.

Wash trades occur when a trading firm engages in buying and selling the same contract. The practice is barred under U.S. regulatory and exchange rules because it can create the appearance of an active market where there is none.

CME voluntarily resubmitted the rules for CFTC approval "to give market participants certainty that the guidance in our advisory is fully consistent with the Commodity Exchange Act and CFTC regulations," Bischel said.

The CFTC, concerned about the frequency with which high-speed traders engage in wash trades, has been reviewing the banned self-dealing with an eye toward crafting new rules to prevent it, Chilton told Reuters earlier this year.

The changes sought by CME draw a clearer line between intentional and unintentional self-trading. The distinction is a key point for high-frequency traders who say that some self-dealing is inevitable given the speed and volume of their transactions.

CME earlier this month launched an optional feature on its electronic trading platform designed to prevent wash trades by allowing traders to block matching buy and sell orders.

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