R3COGNITION, London’s leading financial IT development powerhouse, has launched an innovative CME Rule 575 IT solution. Its market abuse solution enables derivatives trading organisations to pinpoint the disruptive practices prohibited by the new CME rule that came into force on 15 September 2014. R3COGNITION is launching its solution to the North American market at the 30th Annual Futures & Options Expo in Chicago.
“CME’s Rule 575 came into effect on 15 September 2014 leaving many financial institutions vulnerable to potential enforcement action by the CME for undetected disruptive trade practices conducted by their derivatives trading teams,” explains R3COGNITION’s Director of Regulatory Management, Richard Seaman.
“Our market abuse trade surveillance solution delivers a suite of monitoring tools designed to detect sophisticated activities such as front running, layering and spoofing and parking. Unlike existing solutions that generate too many false positives, our solutions use a combination of exchange-based rules and behavioural and trend analysis to ensure that all disruptive practice is identified.”
The CME issued this new Rule 575 prohibiting certain disruptive trading practices that largely mirrors prohibitions in the Dodd-Frank Act. In addition, CME issued 22 FAQs and answers regarding prohibited and non-prohibited conduct, and nine non-exclusive examples of prohibited activity. Investment banks, brokers, market makers and proprietary houses trading in derivatives that are found to have violated this rule could find themselves answerable to one or more of CME Group Exchange’s Business Conduct Committees.
Firms found to be in breach of the rules face potential market access suspension and fines by CME Group, together with significant reputational damage. And even if CME fails to find conclusive evidence, the US Commodity Futures Trading Commission (CFTC) could conduct its own investigations into a firm’s system of supervision and internal controls, with powers to impose similar penalties for supervision violations.
“The rules require firms operating on the CME’s exchanges to run their businesses in a proper manner, alongside other demanding provisions,” continues Seaman. “Our solution enables banks, brokers and proprietary trading firms to do just that, cost effectively and compliantly.”
Seaman concludes: “The FIA Expo 2014 offers an ideal opportunity for those US-based organisations affected by Rule 575 to see how our market abuse tools work. We’ll be running demonstrations of our solution for financial institutions and the media from our Booth 1009, Salon C - Blue Hall, in the Chicago Hilton.”