Nanex Research

Nanex ~ 08-Sep-2014 ~ CME Rule 575

Beginning September 15, 2014, CME's new rule 575 ("Disruptive Practices Prohibited") goes into effect. The document accompanying rule 575 describes many of the issues we have pointed out and published over the years. Although these manipulative strategies have been illegal in the past under existing prohibitions on manipulation (see the CFTC Panther fine), rule 575 explicitly lists several types:

The document accompanying rule 575 also includes several examples of prohibited activity. The first is the placing of large orders to influence prices.

Below, is a likely real world case of the example described above. These are quite common: we simply pulled the first obvious example from today (September 8, 2014).

1. September 2014 Nasdaq 100 (NQ) futures contract depth of book. (How to read)
Each of the white arrows indicates a significant order that appears and disappears before execution. The 3rd arrow points to a solid red bar which was from  a single order to sell 940 contracts at 4095.50. It was placed at 9:41:25 and then canceled about ~25 milliseconds before trades execute at that price. At the time of entry, there were 67 contracts for sale at that price level - which is the typical size in this contract. The 940 contract sell order was over 10 times larger than normal.

2. Zoom of chart 1 above showing when the large sell order for 940 contracts appears.

3. Zoom of chart 1 above showing when the large sell order is canceled.

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