MARKET REGULATION ADVISORY NOTICE______________________________________________________________________
Exchange

CME, CBOT, NYMEX & COMEX

Subject

CME Globex Pre-Open GuidanceRule References

Various

Advisory Date

April 11, 2019

Advisory Number

CME Group RA1903-5

Effective Date

April 25, 2019

Effective on trade date Thursday, April 25, 2019, and pending all relevant CFTC regulatory review
periods, this Market Regulation Advisory Notice will supersede CME Group Market Regulation Advisory
Notice RA1715-5 from October 18, 2017. This Advisory Notice provides additional regulatory guidance
attendant to activity during the CME Globex electronic trading platform (“Globex”) pre-open period.
Rule 573 (“Globex Opening”) states that prior to the opening of each Globex session, Globex will provide
an indicative opening price (“IOP”) or prices. The IOP reflects the price between the buying and sellingpressure at which the largest volume of trading can occur based on the Globex equilibrium pricealgorithm, taking into consideration all pending orders that could be executed on the Globex opening. The
IOP is broadcast to all Globex users and to the CME Group market data/ticker feed. During the 30second period prior to the opening (referred to as the “lockdown” or “no cancel” period), new orders may
be entered, although no previously entered order may be modified or cancelled.
CME Group markets observe U.S. holidays with amended opening times and extended pre-open periods
several times a year. The relevant schedules are accessible here.
This Advisory Notice and the accompanying Frequently Asked Questions (“FAQ”) section provide a nonexhaustive list of order messaging practices during the pre-open period that violate or may be deemed toviolate Exchange rules.
1. Disruptive Practices During the Pre-Open Period
Rule 575 (“Disruptive Practices Prohibited”) requires that all orders be entered for the purpose of
executing bona fide transactions and requires that all actionable and non-actionable messages beentered in good faith for legitimate purposes, including during the pre-open period. Pursuant to Rule 575,
no person shall enter or cause to be entered an order with the intent, at the time of order entry, to cancel
the order before execution or to modify the order to avoid execution. Rule 575 further provides that no
person shall enter or cause to be entered orders with the intent to disrupt, or with reckless disregard forthe adverse impact on, the orderly conduct of trading or the fair execution of transactions.
The entry, modification or cancellation of orders during the pre-open period for the purpose ofmanipulating the IOP, causing artificial fluctuations in the IOP or identifying liquidity in the order bookviolates Rule 575 and may be deemed to violate other Exchange rules. Further, the intentional or recklessentry of orders priced through the then existing IOP that cause a market disruption on the open may bedeemed to violate Rule 575 or other Exchange rules.

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2. Market-on-Open Orders
Globex does not support the entry of market-on-open (“MOO”) orders. Accordingly, market participants
may not place MOO orders for entry with brokers or other parties eligible to handle customer orders, andno party may accept MOO orders. As such, brokers or other parties eligible to handle customer orders
may not guarantee a fill to their customer at the opening price.
Information on eligible order types for entry into Globex may be found using the following link:
https://www.cmegroup.com/confluence/display/EPICSANDBOX/Order+Types+for+Futures+and+Options
Market participants wishing to place an order with a broker or other party eligible to handle customer
orders prior to the time that Globex opens must either indicate a specific limit price for the order or place a
DRT (disregard tape or not-held order) order. A DRT order gives the party handling the order complete
discretion over price and time in execution of the order, including discretion to execute all, some or noneof the order.
Any market participant entering orders or causing orders to be entered during the pre-open period atprices significantly above and/or below the displayed IOP (or best bid/offer) must be cognizant of thepotential for such orders to cause aberrant price movement during the pre-open period. Market
participants are reminded that if such aberrant price movement occurs, the activity may be deemed toviolate Rule 575. Additionally, market participants must be capable of handling the financial obligations
attendant to the full execution of their orders at the prices that are entered into Globex.
3. Orders Intended to Negate or Strictly Limit Market Risk
Opposing orders for accounts with the same or common beneficial ownership entered during the preopen period which match upon the opening of the market that a market participant knew or should have
known would match violate Rule 534 (“Wash Trades Prohibited”). Market participants should have areasonable expectation that resting buy and sell orders may match when the market opens if buy orders
are priced at or above the price of the market participant’s resting sell orders or sell orders are priced at or
below the price of the market participant’s resting buy orders.
Market participants need not trade against themselves on the opening match to violate Rule 534. A
purchase (sale) opposite a counterparty followed by a sale (purchase) at the same price opposite thesame or different counterparties may be deemed an “indirect wash trade” in violation of Rule 534 if theorders were entered with the intent to negate or strictly limit market risk.
It is a violation of Rule 534 for a market participant to attempt to circumvent the “no cancel” period byentering an order that could trade opposite a pending order from the same market participant or apending order from an account with the same or common beneficial ownership.
4. Automated Trading System Order Entry
Market participants are permitted to deploy an algorithmic or automated trading system (“ATS”) during thepre-open period. Market participants must ensure the logic or other configurations of the ATS are suitablefor deployment during the pre-open period.
Rule 432.W. requires parties to diligently supervise their employees and agents, including ATSs, in the
conduct of their business relating to the Exchange. All market participants are expected to monitor theirATSs and prevent aberrant order messaging, which may be disruptive to the IOP.

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5. Testing
Pursuant to Rule 575, market participants are prohibited from entering test orders in non-test products
during the pre-open period for any reason.
Entering an order(s) in a non-test product without the intent to execute a bona fide transaction isprohibited under Rule 575.
CME Group offers test products to facilitate connectivity and messaging testing on CME Globex. For
more information please visit:
http://www.cmegroup.com/confluence/display/EPICSANDBOX/CME+Globex+Test+Products.
Questions regarding this Advisory Notice may be directed to the following individuals in Market
Regulation:
Jennifer Dendrinos, Senior Director, Investigations, 312.341.7812
Colin Garvey, Manager, Investigations, 312.435.3656
Erin Middleton, Director, Rules & Regulatory Outreach, 312.341.3286
Paige Gawrys, Senior Specialist, Rules & Regulatory Outreach, 312.872.5078
For media inquiries concerning this Advisory Notice, please contact CME Group Corporate Communications at
312.930.3434.

FAQ Related to Activity During the Globex Pre-Open Period

Q1:

What factors does Market Regulation consider in assessing a potential violation of Rule575 as it relates to activity during the pre-open period?

A1:

In addition to the factors listed in the Market Regulation Advisory Notice on prohibited disruptive
practices, Market Regulation considers the following non-exhaustive list of factors in assessing
whether conduct during the pre-open period violates Rule 575:•

the percentage of orders/volume a market participant canceled during a particular pre-open
period, or the cancellation percentage during multiple pre-open periods over a period of time;•

the cancellation percentage of a market participant’s orders/volume during multiple pre-open
periods over a period of time compared to such market participant’s cancellation percentage
of orders/volume during active trading hours;•

the size (quantity) of a market participant’s orders during the pre-open period compared tothe size (quantity) during active trading hours;•

impact on the IOP;•

order activity by a market participant in concurrent pre-open periods in related Exchange
markets;•

whether a market participant entered crossed-market orders (see Q&A 2) during the pre-open
period, whether the crossed-market orders remained in the order book at the market open;
the timing of crossed-market order placement; the length of time the crossed-market orders

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remained in the order book; whether crossed-market orders were entered on both sides ofthe market; and•the percentage of a market participant’s orders entered during multiple pre-open periods thatremained in the market at the market open.

Q2:

What is considered a crossed-market order during the pre-open period?

A2:

A crossed-market order is a bid entered at a price above the currently displayed IOP or best offer,
or an offer entered at a price below the currently displayed IOP or best bid.

Q3:

Is a market participant prohibited from cancelling orders during the pre-open period?

A3:

No. Market participants are not prohibited from cancelling an order during the pre-open period if
the order is cancelled for legitimate purposes, including but not limited to mitigating risk due tochanging market conditions, a shift in market outlook, or a modification in trading strategy.

Q4:

Is a market participant allowed to enter a crossed-market order during the pre-open
period?

A4:

Yes, there are several reasons a market participant may wish to enter a crossed-market orderduring the pre-open period including to secure queue position or increase the likelihood of getting
filled at the market open. However, frequent modifications or cancellations of crossed-market
orders may demonstrate that the market participant does not intend for the orders to be filled at
the market open, which may be deemed to violate Rule 575 or other Exchange rules.

Q5:

A5:

Furthermore, if the crossed-market order entries, modifications, and/or cancellations cause undue
fluctuations to the IOP, the conduct may be deemed to violate Rule 575 or other Exchange rules.
Is it a violation of Rule 534 if opposing orders entered during the Globex pre-open period
for accounts with the same or common beneficial ownership match opposite each otheronce the market opens?
Yes. Market participants should have a reasonable expectation that their resting buy and sellorders may match opposite each other when the market opens if the buy orders are priced at or
above the price of their resting sell orders or the sell orders are priced at or below the price of
their resting buy orders. If a market participant’s buy and sell orders match opposite one anotherwhen the market opens as a result of orders entered during the Globex pre-open period that a
party knew or should have known would match, the party has violated Rule 534.
Furthermore, market participants need not trade against themselves on the opening match toviolate Rule 534. A purchase (sale) opposite a counterparty followed by a sale (purchase) at thesame price opposite the same or different counterparties may be deemed an “indirect wash trade”
in violation of Rule 534 if the orders were entered with the intent to negate or strictly limit market
risk.

Q6:
A6:

Q7:

Is a market participant allowed to switch sides of the market when entering orders during
the pre-open period?
Yes, provided that all orders are entered for bona fide trading purposes. Market Regulation
recognizes that market participants may change their trading strategy based on many factors,
including changing market conditions and/or a shift in market outlook.
What is the appropriate order entry method during the pre-open period for a party wishing
to increase the likelihood of being filled on the open?

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A7:

Crossed-market orders increase the likelihood of being filled on the market open. Market
participants are reminded, however, that they must be willing and able to trade the full quantity of
their orders at the prices entered on such orders. Additionally, market participants must be
cognizant that crossed-market orders may cause aberrant price movement during the pre-open
period, particularly in instances where the order quantity is large relative to the market depth at
the time of order entry. If an aberrant price movement occurs, the activity may be deemed toviolate Rule 575.

Q8:

May a market participant enter orders during the pre-open period in markets eligible for
Trading at Settlement (“TAS”), Trading at Marker (“TAM”), Basis Trade at Index Close(“BTIC”), or Basis Trade at Cash Open (“TACO”) pricing?

A8:

Yes, however any market participant who initiates the entry of a TAS, TAM, BTIC, or TACO orderprior to receipt of the security status message indicating that market has transitioned to the preopen period will be subject to disciplinary action by a panel of the Business Conduct Committee,
notwithstanding that the order may have been rejected by the CME Globex system.

Q9:

Are automated trading systems allowed to operate during the pre-open period?

A9:Yes, market participants may utilize an automated trading system (“ATS”) during any pre-open
period. If an ATS is enabled during the pre-open period, the algorithm should contain logic toaccount for its unique characteristics, such as the recognition that trade matches do not occur
until the market opens, in order to avoid causing undue fluctuations to the IOP.

Q10:

Do orders entered during the pre-open period need to be entered at prices consistent withthe contract’s settlement price from the prior trading session?

A10:

No, orders may be entered at any price level provided the order has been entered with an intent
to trade and the order’s price does not cause an undue fluctuation to the IOP.

Q11:

How may market participants receive advance notifications regarding upcoming extended
pre-open periods in observance of U.S. Holidays?

A11:

Market participants may subscribe to receive advance e-mail notifications of upcoming holidays
by selecting the “Globex Notices” checkbox in the CME Group Subscription Center via thefollowing link: http://pages.cmegroup.com/subscription-center-sign-in.html

Examples of Prohibited Activity During the Pre-Open Period•

Scanning the Book for Hidden Orders: A market participant places a crossed-market buy order(i.e. an order to buy priced above the existing IOP or best offer) for the purpose of ascertaining
whether there are stop or iceberg orders (i.e. non-displayed liquidity) on the sell side of the orderbook. Then, after learning the state of the sell side of the market, the market participant cancels
that bid and places an order or orders to sell. The original buy order was non-bona fide, as its
purpose was not to engage in a transaction in the market but to identify hidden liquidity on the
opposite side of the market. Further, the market participant’s intent at the time of order entry was
to cancel the order prior to execution. This type of conduct violates Rule 575.

•

Market Depth Testing: To determine the maximum quantity the market participant can purchaseon the open at the then existing IOP, the market participant enters a series of crossed-market buy
orders until one of the crossed-market buy orders causes the IOP to shift up. Having ascertained
the maximum buy quantity that could be entered without shifting the IOP, the market participant

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cancels all buy orders. Typically, then, during the lockdown period, the market participant enters
buy orders with quantities the participant believes, based on the previous non-bona fide activity,
will not cause the IOP to shift. The original series of buy orders were non-bona fide, as their
purpose was not to engage in a transaction in the market but to identify the depth of the market.
Further, the market participant’s intent at the time of entering the orders was to cancel them prior
to execution. This type of conduct violates Rule 575.
•

Lockdown Circumvention, Negating Market Risk: Prior to the lockdown period, a market
participant enters a crossed-market buy order. After the pre-open period transitions to the
lockdown period, other market participants’ activity causes the IOP to shift up. No longer wanting
to buy at the new (higher) IOP and unable to cancel or modify his resting buy order, the market
participant enters a crossed-market sell order to offset or “scratch” the original buy order. During
the opening match, the market participant’s buy and sell orders trade at the opening price. With
the entry of the crossed-market offer, the market participant did not intend to take a bona fide
market position and intended to negate market risk and price competition. This type of conduct
violates Rule 534.

•

IOP Manipulation: A market participant places large quantity orders at the beginning of the preopening period in an effort to artificially increase or decrease the IOP with the intent to attract
other market participants. Once others join the market participant’s bid or offer, the market
participant cancels his orders shortly before the lockdown period. Consequently, those othermarket participants did not have an opportunity to react to the cancelled bids or offers prior to theopen when their orders became executable.