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CME Rule 575
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CME Rule 575

  #11 (permalink)
Market Wizard
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Big Mike View Post
Intent is hard to prove.

Far less so if its an Algo than when it was open outcry.

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  #12 (permalink)
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SMCJB View Post
Far less so if its an Algo than when it was open outcry.

How so?

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  #13 (permalink)
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Big Mike View Post
Intent is hard to prove.


SMCJB View Post
Far less so if its an Algo than when it was open outcry.


Big Mike View Post
How so?

Because you can look at the code and see what the code is programmed to do.
For example if you have an algo that's programmed to show size on the bid and then sell when other bids come in, that will be very obvious in the code.
You can't argue that wasn't your intent if you programmed it that way.

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  #14 (permalink)
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SMCJB View Post
Because you can look at the code and see what the code is programmed to do.
For example if you have an algo that's programmed to show size on the bid and then sell when other bids come in, that will be very obvious in the code.
You can't argue that wasn't your intent if you programmed it that way.

And you think the firms will be giving the code to the CME?

Mike

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  #15 (permalink)
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Recent FT71 comment

FT had quite a comment on this in his Friday webinar to Stage 5 clients.

As we rolled this week, I started out asking him about the backwardation in the ES and if it was normal or not. (bear with me)

His reply was that:

a) We have had backwardation for a really long time now.

b) It is due to QE and similar programs in other countries keeping interest rates virtually at zero, so there is virtually no carrying cost to a futures contract these days.

c) He feels we wouldn't need something like 575 if there were more diverse opinions in the marketplace, but right now most big players are lining up to see what the fed does next.

d) He hopes that the fed will back away from such low rates and when it does, stuffing will go away by itself because it will no longer be possible.

I thought that was great insight. A lot more than I would have figured out! I guess that's why he's FT.

Mean time, I think 575 can only help.

We'll see what happens....

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  #16 (permalink)
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Big Mike View Post
And you think the firms will be giving the code to the CME?
Mike

Probably a good question for @artemiso
Under normal circumstances probably not, but under threat of ban, maybe.

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SMCJB View Post
Probably a good question for @artemiso
Under normal circumstances probably not, but under threat of ban, maybe.

I strongly disagree. Naturally @artemiso has more experience in this area than me, and I hope he comments. But it seems to me the new rules are just a show and have loopholes big enough to drive an armored truck full of the money they made trading against these rules through them.

Basically it's just a matter of intent/opinion. "But sir, when we placed that order, we would have been willing to get executed on it. Unfortunately, that didn't happen and was out of our control, so we had to cancel it". x 1 million per day.

Mike

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  #18 (permalink)
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Big Mike View Post
I strongly disagree. Naturally @artemiso has more experience in this area than me, and I hope he comments. But it seems to me the new rules are just a show and have loopholes big enough to drive an armored truck full of the money they made trading against these rules through them.

I agree completely. As mentioned already I think everything outlined is already against the rules.

Big Mike View Post
Basically it's just a matter of intent/opinion. "But sir, when we placed that order, we would have been willing to get executed on it. Unfortunately, that didn't happen and was out of our control, so we had to cancel it". x 1 million per day.

But that was sort of my point. If the Algo is programmed to send the cancel immediately after the order was sent, and before anybody else at the exchange could ever possibly react to it, you really have proof that there was no intent to trade. But as you have pointed out, if you can't see the code, you don't have the proof.

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SMCJB View Post
If the Algo is programmed to send the cancel immediately after the order was sent, and before anybody else at the exchange could ever possibly react to it, you really have proof that there was no intent to trade. But as you have pointed out, if you can't see the code, you don't have the proof.

And I feel confident the CME will never see the code. So therefore cannot prove intent.

If they were serious, the rules would have included numerical figures. Like "no more than x per y". That is not ambiguous.

Mike

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Need help?
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  #20 (permalink)
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I'm busy and will probably come back to comment later but a few quick points:

1. Explaining code to a room full of compliance guys is impossible.
2. Code can be made up to tell any story.
3. There are so many moving pieces that backtracing it is going to take too much explaining.

What's wrong with modifying orders 1 million times per day? In liquid equities and futures, you're only seeing about 10 order actions per execution. In options, I've seen 10,000+++ order actions per execution.

In fact, if people think canceling orders gives you such an advantage, why not do it yourself? The restrictions are tougher on high volume participants than retail participants. You can add and cancel the same order 500 times on the Eurodollar and you will still not get flagged. I can't get away with 6.

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