on everyone we have a filing to talk about i think this is the first filing i've talked about out of
the uh sibo futures exchange but nonetheless we are going to talk about srcfe 2021008 disruptive
trading practices let's go ahead and take a look when moon so this was filed today and it is uh
notice of filing a proposed rule change regarding destructive trading practices so it's not filed
immediately and effective immediately so this will have to sit there for some time now cfe rule 620
named disruptive practices prohibits various disruptive practices and cfe policy and procedures
um xviii disruptive trading practices of the policies and procedures section of the rule book
lists various factors that cfe may consider in assessing whether conduct violates rule 620
the proposed rule change proposes to make the following clarifying updates
in relation to these provisions
so the title of section e of the pnp section 8 is currently orders entered by mistake the
proposed rule change proposes to revise the title of section e of pnp section 8 to be orders entered
by mistake or error to clarify that the section covers orders entered either by mistake or error
the exchange considers the term mistake and error to be synonymous or synonyms for one
another while recognizing that a mistake may be associated with human action while an error
may be more associated with system behavior so are they expecting some system behavior soon
to the extent that there is a difference between the two terms and that the section refers to
errors within the text of the provision the exchange is making this change to make clear
that a mistake is encompassed with references to errors in the text of the provision
now the first image of that section currently provides that an unintentional accidental or fat
finger order will not constitute a violation of rule 620 but such activity may be a violation of
other exchange rules including but not limited to rule 608 acts detrimental to the exchange
acts inconsistent with just and equitable principles of trade and abusive practices
the proposed rule change proposes to insert the word typically after the word not so that the
sentence provides that an unintentional accidental or fat finger order will not typically constitute
a violation of rule 620 but such activity may be a violation of other exchange rules including
but not limited to rule 608 the second sentence of the section provides that market participants are
expected to take steps to mitigate the occurrence of errors and their impact on the market the
proposed rule change proposes to further flesh out this sentence by revising it to provide that
market participants are expected to take reasonable steps or otherwise have controls
to prevent detect and mitigate the occurrence of errors market disruptions and system anomalies at
and their impact on the market this proposed additional language clarifies that market
participants are expected to take reasonable steps or to otherwise have controls in place to prevent
detect and mitigate the occurrence of errors market disruptions and system anomalies
and their impact on the market the proposed rule change proposes to add the following sentence
at the end of section e of pnp section 8 in reference to the section sentence
of section e of that section which reads failure to take reasonable steps to prevent detect and
mitigate such errors market disruptions and system anomalies or impacts may violate rule
609 which is supervision or other exchange rules this sentence is intended to provide
additional clarity to market participants about how the section interacts with other cfe rules
cfe is also proposing to add an example of prohibited activity under rule 620 in particular a
non-exhaustive list of various examples of conduct that may be found to violate rule 620 is included
in the pnp section 8. the additional examples provide a specific illustration of a trading
strategy that may violate rule 620 which involves purposefully submitting malformed data packets
to the cfe's trading system as part of a trading strategy to reduce latency in particular this
type of trading strategy may violate rule 620 paragraph b subsection iv which provides
that no person shall intentionally recklessly submit or cause to be submitted an actionable
or non-actionable message that has potential to disrupt the system of the exchange or other market
participants now a message all that is is back and forth communications between market makers
the proposed additional example includes the following fact pattern
a market participant engages in a trading strategy where the market participants trading system
is designed to purposely submit malformed data across one or more physical connections
to the exchange what for example based on information received the participants trading
system begins constructing an order message for example an ethernet frame tcp or ip packet
the trading system is designed so that if further information is received
during construction that negates the desire or need to trade the order being constructed the
system the trading system will stop construction and submit the incomplete data to the exchange
because the incomplete data cannot be properly processed by a network switch or receiving device
at the logical or physical entry point to the cfe system the receiving device will discard
the data if no further info is received by the trading system during construction that
would negate the desire or need to take the order the trading system will complete construction of
and submit the data so that an order message from the trading system is able to reach
the cfe system the practice of submitting to the exchange purposely incomplete or malformed
data packets has the potential to disrupt the systems of the exchange and may violate rule 620.
in essence the proposed rule change furthers the goals of the electronic trading risk principles
by mark by making clear among other things number one that market participants are expected to take
reasonable steps or otherwise have controls to prevent detect and mitigate the occurrence of
errors market disruptions and system anomalies and their impact on the market and number two
the factors which may be considered in determining whether a market participant intended to disrupt
or demonstrate a reckless disregard for the orderly conduct of trading
where the fair execution of transactions include but are not limited to the impact to other market
participants ability to trade engage in price discovery or manage risk so there you go give the
responsibility into the hands of the criminals they'll make the right decision right gary you
gonna prove this one right gary go get him go get it gary he's gonna get it he'll get it that's it