CFTC Publishes Final Text of Disruptive Trading Guidance (with Explanation from Delta Strategy Group)

The CFTC published its final guidance on Dodd-Frank Section 747, which prohibits certain disruptive trading practices.

Lofchie Comment: We have linked below to a fulsome description of the CFTC’s guidance. Unfortunately, the CFTC’s guidance is ultimately ambiguous and overbroad. To cite just one obvious example, the CFTC says that the posting of a bid or offer with an intent to withdraw it before execution may be viewed as a violation, but investors post bids and offers all the time without expecting that such bids and offers will be executed.

Further, investors are prohibited from acting with “disregard for the orderly execution” of transactions during the closing period. However, it is not clear to me what responsibility investors have for orderly execution. The CFTC says that it is basing this rule on rules that have long been applicable in the securities markets, but the securities rules to which the CFTC refers in fact apply to specialists on an exchange who have an affirmative obligation to maintain an orderly market, and the term “orderly market” has been fairly well defined to mean a market that would not move more than a specified amount up or down based on a specified amount of trading in one direction. In short, the securities law precedent on which the CFTC believes it is drawing is not very relevant — even if it happens to use the same words.

Link here to the description of the disruptive trading practice guidance provided by Delta Strategy Group.