CFTC Publishes a Proposed Interpretive Order on Disruptive Trading Practices under Dodd-Frank


The Dodd-Frank Wall Street Reform and Consumer Protection Act added a new Section 4c(a)(5) to the Commodity Exchange Act (CEA) regarding disruptive trading practices, which prohibits any trading, practice or conduct on or subject to the rules of a "registered entity" that (a) violates bids or offers; (b) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or (c) is, is of the character of, or is commonly known to the trade as, "spoofing" (bidding or offering with the intent to cancel the bid or offer before execution).

On March 18, the Commodity Futures Trading Commission published a proposed interpretive order regarding these disruptive trading practices under the Dodd-Frank Act (and simultaneously terminated a previously issued advance notice of proposed rulemaking on the same subject). The proposed interpretive order provides market participants with guidance regarding CEA Section 4c(a)(5) and addresses concerns by market participants in response to the advanced notice of proposed rulemaking. Items clarified by the proposed interpretive order include the scope of Section 4c(a)(5), what specific conduct and trading practices would violate the statute, what it means to "violate" bids or offers, and certain other terms set forth in the statute.

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