Did you know there have been multiple instances of disruptive trading penalties in the CME pre-open?
The pre-open period for exchange markets serve and important function. They allow the exchange to assess volume and price interest before the markets start to trade to allow an orderly initiation of the trading day. And using the pre-open to assess or influence the opening price as an individual trader is not allowed.
The CME just fined two individuals for disruptive trading in the pre-open for entering trades without the intent to execute (the indications in the pre-open must still represent transactions the trader would intend to execute. The CME noted:
"The entry and cancellation of these orders caused fluctuations in the publicly displayed Indicative Opening Price."
The CME also indicated that the trades were cancelled by using crossed market orders (see our previous blog on November 29, 2018 about cross-block being used for disruptive trading).
Finally, one of the two individuals was also cited for allowing another person to use their Tag50 log in ID to enter crossed trades.
So, once again we have individuals believing they can use the cross-blocking function to cancel trades for purposes of influencing market pricing.
They were fined $15K a piece and suspended from the market for 20 days. The notice that included the Tag50 reference is here - https://www.cmegroup.com/notices/disciplinary/2018/12/cme-16-0584-bc-jason-berry.html#pageNumber=1
It could also be useful to read up on the rules regarding the pre-open and how orders work in the market. The CME notice on market and instrument states is here - https://www.cmegroup.com/confluence/display/EPICSANDBOX/Market+and+Instrument+States. One important market state to note is that during the pre=open there is a period where market orders cannot be cancelled.