CFTC Provides Guidance on Disruptive Practices (with Mocek Comment)

The CFTC issued guidance affirming that it is not permitted under CEA Section 4(c)(a)(5) to (i) violate bids or offers, (ii) disregard the orderly execution of trades during the closing period or (iii) spoof. The CFTC defined "spoof" as making a bid or offer with the intent to cancel the bid or offer before execution.

Since most bids and offers are likely cancelled before execution, this definition is overbroad.

Mocek Comment: The disruptive trading practices guidance that was issued today by the Commission is simply an abbreviated and regurgitated version of the guidance that the CFTC issued in March of 2011. For example, there remain serious concerns in the marketplace that the Commission will pursue enforcement cases for conduct that would be erroneously classified as reckless hedging during a closing period. Similarly, commercial market participants are staying out of the market during the close due to concerns that their trading could be interpreted, post facto, as "disorderly." Rest assured that the amorphous concept of orderliness, and the generally vague nature of this new guidance, will continue to feed the uncertainty associated with trading on the close, and negatively impact liquidity during important closing periods where critical price discovery takes place. (Mr. Mocek was formerly head of Enforcement at the CFTC.)

Fact Sheet: Interpretive Guidance and Policy Statement on Disruptive Practices.Questions Answers: Interpretive Guidance and Policy Statement on Disruptive Practice.