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Friday, May 1, 2015

Futures Regulatory Alert #2015 - 4
Pre-Execution Communication


  • System Impact

Markets Impacted:

Contact Information:


The information below provides some guidance with respect to executing Cross Orders on Nasdaq Futures, Inc. (NFX):

No NFX Futures Participant shall disclose the existence or terms of an Order not yet disseminated by the Exchange, except to representatives of the Exchange or Commodity Futures Trading Commission or otherwise for the sole, necessary, and appropriate purpose of executing the Order, it is precluded pursuant to NFX Rules at Chapter III, Section 24(b).

No NFX Futures Participant shall engage in pre-arranged transactions other than transactions executed in compliance with NFX Rules at Chapter IV, Sections 11 (Block Trades),12 (Exchange for Related Positions) and Chapter V, Section 11 (Pre-Negotiated Business and Cross Transactions).

Futures Participants, in some cases, are permitted to engage in pre-execution communication.

If a person is acting on behalf of another, i.e. a customer, such person must obtain the customer’s consent prior to engaging in pre-execution communications. Records evidencing that such consent was obtained should be available for production upon request of the Exchange.

The details of a pre-execution communication are confidential.

Parties to pre-execution communications shall not (i) disclose to a non-party the details of such communications or (ii) enter an Order to take advantage of information conveyed during such communications.

Futures Participants may execute pre-negotiated business with itself or with its customers.

When pre-negotiating and executing a Cross Order for a customer, a Futures participant must (1) obtain prior written consent from the customer, which is either a generic or transaction specific consent; and (2) act with due skill, care, and diligence, and ensure that the customer's interests are not prejudiced. Participants must also ensure the trade does not constitute a wash transaction.

Orders executed as a result of pre-negotiation must be submitted into the Trading System.

The Orders are submitted into the Trading System as a Cross Order. The Cross Order must specify an equal number of Contracts at a specified price.

Cross Orders will not automatically execute against each other in the Trading System.

Prior to submitting Cross Orders in the relevant Contract that have been pre-negotiated, a Futures Participant must (1) submit a Request for Cross and (2) manually wait five seconds for Futures and five seconds for Options, before submitting the Cross Order. Simply because Cross Orders are submitted into the Trading System, and are exposed to the market, the Trading System may not necessarily match the buy and sell components.

The submitters of a Cross Order are restricted against taking certain actions during the period the Cross Order is active.

The parties to the Cross Order may not enter bids or offers that would improve the bids or offers in the corresponding market during the 5 second crossing window. The parties to the Cross Order (including the submitter of the Cross Order in the case of a broker) may not submit a new Request for Cross until the Cross Order has transacted. The submitter of the Cross Order may not amend the originally submitted Cross Order or submit another Cross Order until the original Cross Order is executed or cancelled by the Trading System.

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