Whole Section

  • 3.12

    Rule 5.12.2(l): Whether there appears to be a legitimate commercial reason for the transaction.

    Added on 3 June 20193 June 2019.

    • 3.12.1

      Many orders for legitimate commercial reasons can change the market for, or the price of, a security or futures contract when executed. Such orders are acceptable despite the volume and/or price impact, but the Trading Member or Trading Representative must consider any additional intentions that may exist and execute the order in an appropriate manner, bearing in mind its or his obligations, including the requirement to maintain an orderly market.

      Added on 3 June 20193 June 2019.

    • 3.12.2

      Examples:

      (a) A Trading Member conducting index arbitrage as principal and entering orders in an illiquid security or futures contract may have a material impact on the price of some securities or futures contracts, even with small orders. Index arbitrage orders are a legitimate commercial reason for trading, but the Trading Member must exercise sufficient care to ensure that the order did not result in a false or misleading appearance with respect to the price of a security or futures contract.
      (b) A Trading Representative accepting orders from a customer seeking to replicate an index at a time when one or more of the securities or futures contracts are being included or excluded from the relevant index, or when the size of the portfolio is being increased or decreased, should consider the impact the orders may have. If the Trading Representative attempts to execute a large proportion of the order during the Pre-Close phase, having ignored opportunities earlier in the day, and the order has a material impact on the closing price, it may result in allegations that the Trading Representative created a false or misleading appearance with respect to the price of that security or futures contract.
      (c) A Trading Member or Trading Representative trading as principal to hedge an exposure should be alert to the impact its trading may have on the market for, or the price of, a security or futures contract.

      Added on 3 June 20193 June 2019.