How You Can Help Preserve Futures Market Integrity

4 min readJun 11, 2024

Understanding CME Group’s Rules Against Disruptive Practices And Wash Trades

In the dynamic world of futures trading, maintaining a fair and transparent trading environment for all traders is essential. To ensure a level playing field and protect market integrity, the CME Group has implemented two crucial trading rules: Rule 575, which prohibits disruptive trading practices, and Rule 534, which prohibits wash trades. These rules are intended to prevent market manipulation, misleading trader conduct, and unfair trading practices.

In this article, we’ll explore the specifics of these rules, including the behaviors they prohibit and why. By understanding these rules, traders can avoid serious sanctions, and gain insights into some of the many processes behind maintaining fair and orderly trading.

Disruptive Trading Practices

To prevent market manipulation, CME Group has implemented Rule 575, which prohibits certain practices that can disrupt the market. The rule applies to all trading activities and covers all market sessions, including preopening, regular trading, and closing session periods.

Under Rule 575, it is strictly forbidden to enter orders with the intention of canceling them before execution or modifying them to avoid execution. This practice, known as “spoofing,” is designed to mislead other market participants and distort market prices.

The rule also addresses practices that can overload or delay systems of the exchange or other market participants. Intentionally entering trades with the purpose of disrupting any trading systems or causing any other potential disruptions is strictly prohibited.

Learn more: Watch an instructional video on rule 575 Disruptive Trading(Opens in a new window). For further guidance, consult CME Group’s Market Regulation Advisory Notice(Opens in a new window) on prohibited disruptive practices.

Both the Coinbase Derivatives Exchange and Intercontinental Exchange (ICE) U.S. have similar rules related to disruptive trading practices:

Wash Trades

Another important rule implemented by CME Group is Rule 534, which prohibits wash trades. A wash trade occurs when a trader places–or accepts–buy, and sell orders in the same futures contract and expiration month–and for options, the same strike price–with the sole purpose of avoiding taking an actual market position exposed to market price risk.

The rule also covers situations where buy and sell orders are placed for different accounts with common beneficial ownership, with the intent to negate market risk or price competition. In such cases, executing or facilitating the execution of these orders, either directly or indirectly, is strictly prohibited.

What Makes A Wash Trade?

Let’s look at the two main factors that would result in a transaction being categorized as a wash trade:

A transaction or series of transactions produces a wash trade result–i.e. there was a purchase and sale for the same instrument at around the same price–in one account or multiple accounts with the same beneficial ownership.
A party or parties intended to achieve a wash result, where intent is defined by evidence of prearrangement that the trades were structured in a manner that the party or parties reasonably knew or should have known would produce a wash result.

The purpose of Rule 534 is to prevent market manipulation and ensure that all trades are conducted in a fair and transparent manner. By prohibiting wash trades, CME Group aims to maintain the integrity of the market and protect market participants from unfair practices.

Learn more: Watch an instructional video on rule 534 Wash Trades(Opens in a new window) for further guidance, consult the CME’s Market Regulation Advisory Notice(Opens in a new window) on rule 534.

Both Coinbase Derivatives Exchange and ICE US have similar Wash Trade rules:

These rules and others are essential elements of the futures trading regulatory framework and environment, designed to promote fair and orderly trading, and maintain the integrity of the market. By observing these rules, traders contribute to an orderly and level playing field, and ensure the transparency and efficiency of futures trading for all traders.

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This article was originally published on NinjaTrader.com: https://ninjatrader.com/futures/blogs/how-you-can-help-preserve-futures-market-integrity/