Chapter 7. Trading Practices and Business Conduct
This CHAPTER 7: prescribes Rules concerning trading practices and business conduct on Seed SEF and applies to Orders and Transactions in Swaps.
With respect to trading on or though the Platform, Seed SEF may adopt, without limitation, procedures relating to transactions in Contracts and trading on the Platform, including procedures to:
disseminate the prices of bids and offers on, and trades in, Contracts;
record Contracts and SEF Activity;
perform market surveillance and regulation on matters affecting Contracts and SEF Activity;
establish limits on the number and/or size of Orders that may be submitted by a Participant through the Platform;
establish limits on the number of Contracts that may be held by a Participant;
establish a limit on the maximum daily price fluctuations for any Contract and provide for any related restriction or suspension of trading in the Contract; and require a suspended or expelled Participant, or a Participant with restricted trading rights, to have Contracts executed for the Participant to reduce or eliminate any open position or exposure to price changes for the Participant in any Contract.
Seed SEF may, in its discretion and at any time, amend any procedures adopted pursuant to Rule 702(a) in accordance with the applicable CFTC procedures, and will publish the amendments in a Notice to Participants or in any other manner determined appropriate by Seed SEF.
Seed Business Days and Trading Hours
Except as provided in Rule 210 with respect to Emergency Actions, Seed SEF shall operate every day, Monday to Friday, except U.S. national holidays. Seed SEF shall be open for trading between the hours of 9:30 am and 2:30 pm Eastern Time (Eastern Time). Seed SEF shall determine and publish a Notice to Participants listing Business Days and the Trading Hours for each Swap.
It shall be an offense for a Participant, Account Manager, Authorized Trader or Supervised Person to violate any Seed SEF Rule regulating the conduct or business of a Participant or its Account Managers, Authorized Traders or Supervised Persons, or any agreement made with Seed SEF, or to engage in fraud, dishonorable or dishonest conduct, or in conduct which is inconsistent with just and equitable principles of trade.
Participants shall assist Seed SEF in any investigation into potential violations of the Seed SEF Rules or the CEA. Such assistance must be timely and may include, but not be limited to, producing documents, answering questions from Seed SEF or its designee, and/or appearing in connection with an investigation.
If a Participant has actual or constructive notice of a violation of Seed SEF Rules in connection with the use of Seed SEF by a Participant, Account or Authorized Trader and the Participant fails to take appropriate action, the Participant may be found to have committed an act detrimental to the interest or welfare of Seed SEF.
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF shall engage in any fraudulent act or engage in any scheme to defraud, deceive, trick or mislead in connection with or related to any SEF Activity.
No Participant, Account Manager, Authorized Trader or Supervised Person shall engage in front running, trading ahead of customers or Clients or trading against customers or Clients.
Fictitious, Wash or Non-Competitive Transactions Prohibited
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF shall create, place or accept fictitious transactions, Wash Transactions, or non- competitive transactions except, in the case of non-competitive transactions, as otherwise authorized by Seed SEF Rules, or execute any such Order with knowledge of its nature as a fictitious transaction, Wash Transaction, accommodation trade or non-competitive transaction. No Person shall place or accept to buy and sell orders in the same Unique Swap Identifier, where the Person knows or reasonably should know that the purpose of the orders is to avoid taking a bona fide market position exposed to market risk. Buy and sell Orders for different accounts with common beneficial ownership that are entered with the intent to negate market risk or price competition shall also be deemed to violate the prohibition on Wash Transactions. Additionally, no Person shall knowingly execute or accommodate the execution of such Orders by direct or indirect means.
Orders entered into the Platform for the purpose of upsetting the equilibrium of the market in any Contract or creating a condition in which prices do not or will not reflect fair market values are prohibited, and any Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF who makes or assists in entering any such Order with knowledge of the purpose thereof or who, with such knowledge, in any way assists in carrying out any plan or scheme for the entering of any such Order, will be deemed to have engaged in an act detrimental to Seed SEF.
Manipulation and Fraudulent Conduct Prohibited
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF shall attempt to manipulate or manipulate the market in any Contract; provided, however, that nothing in this Rule 708 shall be construed to require any Person to disclose to another Person non-public information that may be material to the market price, rate, or level of a particular transaction, except as necessary to make any statement made to the other Person in or in connection with the transaction not misleading in any material respect.
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF shall, directly or indirectly, manipulate or attempt to manipulate the price of any Swap or Contract, corner or attempt to corner any Swap or Contract or any commodity underlying a Swap or Contract, or engage in any activity or conduct otherwise prohibited under Section 9(a)(2) of the CEA.
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF, shall intentionally or recklessly:
Use or employ, or attempt to use or employ, any manipulative device, scheme, or artifice to defraud;
Make, or attempt to make, any untrue or misleading statement of a material fact or to omit to state a material fact necessary in order to make the statements made not untrue or misleading;
Engage, or attempt to engage, in any act, practice, or course of business, which operates or would operate as a fraud or deceit upon any Person; or,
Deliver or cause to be delivered, or attempt to deliver or cause to be delivered, for transmission through the mails or interstate commerce, by any means of communication whatsoever, a false or misleading or inaccurate report concerning market information or conditions that affect or tend to affect the price of any Contract in interstate commerce, knowing, or acting in reckless disregard of the fact that such report is false, misleading or inaccurate.
Disruptive Trading Practices Prohibited
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF shall engage in any trading, practice, or conduct that constitutes a “disruptive trading practice” which includes, but is not limited to, engaging in conduct that:
Violates bids or offers; or
demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or
Is of the character of, or commonly known as “spoofing” (bidding or offering with intent to cancel the bid or offer before execution).
Abusive Trading Practices Prohibited
No Participant, Account Manager, Authorized Trader, Supervised Person or any market participant that directly or indirectly effects a transaction on Seed SEF shall engage in any abusive trading practices, including front-running, Wash Transactions, pre-arranged trading (except as otherwise permitted under the Rules), fraudulent trading or money passes.
No Participant shall make any knowing misstatements of material fact to Seed SEF, any SEF Official, any Board committee or SEF panel, or the Regulatory Service Provider or Governmental Agency.
Acts Detrimental to Welfare of Seed SEF Prohibited
No Participant shall engage in any act that is detrimental to Seed SEF.
No Participant shall engage in conduct that is a violation of the Applicable Law.
A Participant shall be responsible for establishing, maintaining and administering reasonable supervisory procedures to ensure that its Authorized Traders, if any, and Supervised Persons comply with Applicable Law and the Rules, and such Participant may be held accountable for the actions of such Authorized Traders and Supervised Persons with respect to Seed SEF.
Misuse of the Platform is strictly prohibited. It shall be deemed an act detrimental to the welfare of Seed SEF to engage in unauthorized use of the Platform, to assist any Person in obtaining unauthorized access to the Platform, to alter the equipment associated with the Platform, to interfere with the operation of the Platform, to intercept or interfere with information provided thereby, or in any way to use Seed SEF in a manner contrary to the Rules.
Any Participant that mishandles any Order is responsible for all remedial actions and potential direct losses incurred with respect to such Order.
Any Authorized Trader entering Orders on Seed SEF for its Client shall not withhold or withdraw from the market any Order, or any part of an Order, for the benefit of any Person other than such Client.
An Authorized Trader must enter into the Platform all Orders that are immediately acceptable as soon as practicable following receipt.
No Person shall knowingly enter an Order into Seed SEF for its own account, an account in which it has a direct or indirect financial interest or an account over which it has discretionary trading authority, including, without limitation, an Order allowing discretion as to time and price, when such Person is in possession of any competing Order for another Person that Seed SEF is capable of accepting.
For purposes of this Rule, a Person will not be deemed to knowingly enter an Order if (i) such Person is a corporate or other legal entity consisting of more than one individual trader, (ii) such Person has in place appropriate “firewall” or separation of function procedures and (iii) the Authorized Trader entering the Order in question has no direct knowledge of the competing Order.
No Person in possession of an Order from another Person shall knowingly take, directly or indirectly, the opposite side of such Order for its own account, an account in which it has a direct or indirect financial interest, or an account over which it has discretionary trading authority.
No Participant in possession of an Order shall engage in accommodation trading.
No Participant shall disclose the terms of an Order prior to entry onto the Platform except to a designated Seed SEF Official or the applicable regulator, and no Participant shall solicit or induce another Person to disclose Order information. No Person shall take action or direct another to take action based on non-public Order information, however acquired.
Pre-Execution Communications with respect to Permitted Transactions in Swaps shall be allowed.
Except as provided in, and in accordance with, Rule 728, all transactions on Seed SEF will be matched and executed through the operation of the CLOB.
Trading on the CLOB remains open throughout the Trading Day. Executable Orders shall be displayed separately in the Order Book With respect to Swaps, only Bids (Offers) of a counterparty that has previously established an acceptable bilateral credit arrangement with the Participant will be executable the CLOB. All Orders in the CLOB are anonymous. Orders are entered into the CLOB by Participants or their agents.
The CLOB matches Orders using an automated matching algorithm. Bids and Offers are matched on the basis of price/time priority; that is, an Order at a better price will always have priority over an Order at an inferior price and older Orders will have priority over newer Orders at the same price. Provided however, a Bid (Offer) for a Swap can only be matched against an Offer (Bid) for the same Swap, but only with a counterparty who has previously arranged acceptable bilateral settlement arrangements. All counterparties must have available credit in order for their Bid or Offer to be entered into the CLOB.
Trading on the CLOB begins at the opening time.
A Trade is executed on the CLOB when the price of a bid (offer) equals or is greater (less) than the price of an offer (bid) for the same Contract and, if an Option order, the same Strike Price and Option type).
Details of each Transaction executed on the CLOB or subject to Seed SEF’s Rules will be recorded by Seed SEF, and confirmation of the Transaction will be displayed on the Platform for each Authorized Trader who is a party to the Transaction.
Failure of Seed SEF to broadcast any message in respect of a Transaction on Seed SEF or subject to the Rules shall not invalidate such Transaction.
In the event that the Platform or any part of the Platform fails, Seed SEF’s determination that a Transaction has or has not been made shall be conclusive and binding.
The following order types are provided for trading on the CLOB:
Limit Orders. Limit Orders are orders to buy or sell a stated quantity at a specified price, or at a better price, if obtainable. Unless otherwise specified, any residual volume from an incomplete limit order is retained until it is withdrawn or executed. It is a good till cancelled limited order.
Market Orders. Market orders are orders that are executed at the best price or prices available in the order book at the time the order is received by Seed SEF until the order has been filled in its entirety.
Aggregation. No Authorized Trader and no Participant may aggregate orders from different clients for entry in the Platform or execution as a Block Trade.
Prohibition on Allocation of Orders
No Authorized Trader and no Participant may allocate Transactions to more than one Participant on the same side of the market.
Order Modification and Cancellation
Any Order that has been entered into the Platform may be modified or cancelled unless and until it has been executed or has otherwise expired. Any such modification or cancellation requires that a modification order or cancellation order, as the case may be, with respect to the original Order be entered into the Platform. Such modification or cancellation will become effective upon receipt by the Platform of the modification order or cancellation order, as the case may be. If the amount of an Order is reduced, the time priority originally assigned to the order does not change. However, revising the price or increasing the amount of an Order will change the Order’s time priority and the time for such modified Order shall be the time the Platform receives the revision.
If for any reason the connection to the Platform is lost, all orders entered from that location are cancelled.
It shall be the duty of each Authorized Trader to:
Submit orders that include their User ID; and
Input the price, quantity, Seed SEF contract code and appropriate account designation for each order.
The account designation must be an account number, account name or other identifying notation that is uniquely tied to a specific account owner for whom the order is placed.
No Person shall enter a pre-discussed Permitted Transaction for illegal or improper purposes.
Additional Means of Execution of Permitted Transactions: Block Trades
In addition to execution through the CLOB, Permitted Transactions that meet the following conditions may be matched by Brokers or Participants and submitted to Seed SEF for execution as Block Trades, provided however, the transaction shall not be considered to be executed until accepted by Seed SEF:
The Participants have consented in writing on a transaction-specific basis or on a blanket basis to entering into a transaction under the procedures of this Rule, and have agreed to all of the terms of the transaction prior to the Broker or Participant reporting the transaction to Seed SEF;
The transaction is reported in the form and manner specified by Seed SEF as soon as practicable, but in no event more than 14 minutes, following agreement of the Participants to the terms of the transaction;
The transaction may not be entered into for illegal or improper purposes; and
The Broker must keep full, complete and systematic records of the transaction as required by Commission Rule 1.35.
Each Order underlying a Block Trade must (1) state explicitly that it is to be, or may be, executed by means of a Block Trade, (2) be for at least the Appropriate Minimum Block Size of the Contract, and (3) comply with any other Applicable CFTC Regulations governing Block Trades, and Applicable Law.
Seed SEF will from time to time specify the Appropriate Minimum Block Size.
Each party to a Block Trade shall comply with all applicable Rules other than those which by their terms only apply to trading through the CLOB. Seed SEF will only accept Block Trades for particular Contracts as specified by Seed SEF and published by Circular.
Block Trades must be reported to Seed SEF in a manner (and subject to the deadlines) prescribed from time to time by Seed SEF, after price, size, and other relevant terms of the Block Trade have been agreed and affirmed by the parties thereto.
Seed SEF may accept a Block Trade if the details are complete and accurate, are timely submitted, and otherwise comply with these Rules.
Block Trade prices will not trigger unexecuted Orders in the Order Book.
Each Participant that is a party to a Block Trade must comply with the recordkeeping requirements set forth in the Rules.
Any transaction between Participants which is identical to or a close substitute for a Trade that would be acceptable as a Block Trade, including especially transactions that reference Seed SEF traded prices or the index values that underlie Seed SEF contracts, must be submitted to Seed SEF for acceptance.
A Block Trade will be deemed executed and legally binding upon its acceptance by Seed SEF in accordance with these Rules. Seed SEF will issue a trade record for a Block Trade pursuant to Rule 604.
Position Limits or Position Accountability
To reduce the potential threat of market manipulation or congestion, Seed SEF shall adopt for each of the contracts of Seed SEF, as is deemed necessary and appropriate by Seed SEF, position limitations or position accountability levels for speculators. Seed SEF shall on an on-going basis monitor positions established on or through Seed SEF for unusual activity, including but not limited to, unusual volumes, patterns or concentrations of transactions.
Each counterparty to a Transaction must be a Participant.