US-based multi-asset trading venue Intercontinental Exchange (ICE) has developed its rules and guidelines for trading strategies deemed as “disruptive practices.” The exchange has amended the way users view its guidelines and placed them under a single section in the rulebook with simplified language explaining the practices. The changes support the way certain participants view approaches such as high frequency trading (HFT) as HFT battles for acceptance as a viable trading and investment approach.
The trading venue has reported the changes that make it easier for participants to view and understand the rulings. The venue issued details in a statement where it specified the changes in the rulebook for members. The rules cover a range of practices that are classified as Trade Practice Violations and are commonly placed under the high frequency trading banner. Three rules have been added under the 4.02 rules. These include rule 27.20 which covers Trading Against Customer Orders; rule 27.21, Cross Trades; rule 27.22, Pre-Execution Communications; and rule 27.24, Good Faith Bids and Offers. In addition, the exchange has added rule 4.17, Disclosure of Orders, to the same section.
The exchange states in the official notification: “…The Exchange’s Rulebook relating to trading practices [has] been combined into Exchange Rule 4.02 so that all trade practice violations are contained in a single location within the Rulebook.”
High frequency trading as well as certain trading approaches that are regarded as predatory have been under question by regulators and exchanges. Earlier this year, the CME enhanced its rulings to address similar practices under its rule 575. The exchange provided specific examples of types of alleged disruptive trading practices such as spoofing, quote stuffing, and banging the close. Market participants were concerned about the CME’s direct description of the alleged practices
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The CME was also involved in a legal case after three traders put a complaint forward against the venue for providing “early peaks” to traders in April 2014.
ICE’s rule 4.02 covers eight areas, section E (of the rules) has the extended details that the exchange will implement from January 2015. The most significant rules relate to entering orders with “intent to overload, delay, or disrupt the systems of the exchange or other market participants” and the “intent to cancel the order before execution.”
Exchange’s across the globe responded to the so-called threat of HFT practises that include the entry of placebo orders by introducing defence mechanisms such as circuit breakers or a minimum time period for orders.
The latest enhancements reinforce the modus operandi of exchanges as they battle against traditional manual traders and the new, algorithmic-high frequency trading classes. As exchanges continue to embrace the tech-revolution, their understanding of HFT is expected to change, hopefully for the betterment of the marketplace.