ICE Futures US issued a new FAQ on disruptive trading rules. There are some significant changes in here - especially several of the later items where entirely new FAQ answers have been added. The full notice is here
Here are the things that have changed:
1. The pattern of all messages - not just those alleged to be entered without intent to execute - is important. This would explicitly allow ICE to broaden its allegations to include the interaction of orders intended to be executed and those alleged to be without intent;
2. Added "indicative opening price" to the specific list of prices impacted by disruptive trading - the pre-open has been part of CME disruptive trading disciplinary actions. DCM cannot find any actions for pre-open activity discipline by ICE Futures US in the past so this may open new doors here;
3. Specific reference to whether a firm used industry best practices in designing, testing, implementing, changing, monitoring and documenting an automated trading system. I would note the last item in that list - DCM has observed instances where automated system documentation has been less than adequate. ICE US Futures is setting the bar fairly high by requiring best practices documentation;
4. ICE US added "made inactive" to the type of message actions that may not be considered disruptive trading;
5. There are significant changes in the language regarding orders entered by mistake or error. The language adds a qualifier to the idea that errors will not be considered a violation to read errors are not typically considered an error - moving errors back into potential disruptive trading. The requirement is now that "reasonable actions" be taken to correct the error and there is an expectation that there will be controls to prevent, detect, and mitigate errors or systemic anomalies (which would indicate automated trading system errors). This places an affirmative responsibility to have controls in place. They add "Failure to take reasonable steps to prevent, detect, and mitigate such errors, anomalies, or impacts may result in a violation of Exchange Rule 4.01" and then they refer to the "duty to supervise" obligation;
6. New FAQ question on stop orders indicating they are not an order entered without intent to execute. However, the answer then indicates that the stop order must be intended to execute if the stop order conditions are met. So, a stop order is not a disruptive trading action on its face but it still can constitute a disruptive practice is used improperly;
7. A new sentence has been added to the definition of "orderly execution" by including impacts on other market participant's ability to transact: "Additional factors for consideration include, but are not limited to, whether a market disruption or system anomaly limited the ability of market participants to trade, engage in price discovery, or manage risk." An example might be an order that triggers a market halt;
8. They have brought in circumstances from recent cases to flesh out factor for ICE determining an act was done with intent or reckless disregard by indicating that " furnishing false information, failing to furnish information or making false statements to Market Regulation staff is a violation of Exchange Rules." There have been recent instances where firms accused of disruptive trading have provided incomplete or incorrect information in defense of their actions, this could make such actions a factor in determinations of a rule violation;
9. The FAQ on orders "igniting momentum" as a disruptive practice has been modified to cover a single order as well as multiple orders - a single order can now be considered a disruptive trade under this modification,
10. The FAQ on pre-open disruptive trading has been modified to remove the specification of "related to the pre-open" to other actions, such as orders prior to the pre-open. This may make the assertion that an action prior to or around the pre-open but was not "related to the pre-open" less effective against an exchange action,
11. There is a new FAQ specifically indicating a broker and execution clerk has an independent duty to assure customer orders do not violate disruptive trading rules and customer or employer instructions are not a defense.
12. New FAQ answer indicating that orders used to test ICE connectivity or data feed are orders entered without intent to execute and, as such, are disruptive. This should be something every shop needs to make their IT staff aware of.
13. New FAQ on negative price orders indicating they are NOT disruptive on the face. However, use of these orders to induce other market participants to trade or to mislead others of market conditions is disruptive trading. They note that "orders entered significantly away from the best bid or best offer will be scrutinized by the Exchange as potentially entered with the intent to establish a market price that does not reflect the true state of the market".
14. New FAQ answer on large orders - the answer is yes, they can be disruptive and it is the market participants obligation to know their market and assure that order don't distort "the integrity of the settlement prices".
There are some very significant shifts indicated in these answers - it would be appropriate to review both your controls and your monitoring to confirm these news rules don't create gaps in your coverage.