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MARKET REGULATION ADVISORY NOTICE

From NEX SEF Limited (“NEX SEF”)

To All EBS NDF Platform Participants

Subject Disruptive Trading Practices

Rule References 406

Effective Date May 1, 2018

Notice Date April 17, 2018

Notice Number 2018-001

NEX SEF | Trading Standards and Prohibited Trading Practices 

It is important to NEX SEF that all Participants have a rewarding experience on the NEX SEF platform. 

It benefits the market to have the liquidity and price discovery that comes from as many Participants as 

possible that are able and willing to transact with each other. Accordingly, NEX SEF is issuing this 

Market Regulation Advisory Notice (“MRAN”) to provide additional guidance on compliance with NEX 

SEF’s Trading Standards by clarifying certain prohibited trading practices. 

In particular, this MRAN provides guidance on the application of Chapter 4 (Trading Standards) of the 

NEX SEF Rulebook. Chapter 4 sets out trading standards and general rules of conduct that must be 

observed by all Participants at all times when trading on NEX SEF. 

NEX SEF Rule 406 sets out types of disruptive Bid/Offer entry and trading practices that the Operator 

would find to be abusive and/or disruptive to the orderly conduct of trading or the fair execution of 

Transactions. 

The text of Rule 406 is set out below. This list is not exhaustive. 

Rule 406 Disruptive Trading Practices

(a) No Participant or Customer shall enter or cause to be entered any Bid/Offer or Pre Arranged

Cross or other message with the intent to, or with reckless disregard for the adverse impact

on, the orderly conduct of trading or the fair execution of transactions.

(b) No Participant or Customer shall enter or cause to be entered any Bid/Offer or Pre Arranged

Cross or other message with the intent to:

(1) mislead other Participants;

(2) overload, delay, or disrupt the Order Book, any Trading Platform or any other systems

of the Facility or other Participants; and

(3) cancel any Bid/Offer before execution or to modify the Bid/Offer to avoid execution.

(c) No Participant or Customer shall engage in any trading, practice or conduct on the Facility or

subject to the Rules that (i) violates Bids/Offers; (ii) demonstrates intentional or reckless

disregard for the orderly execution of transactions during the closing period; (iii) is, is of the

character of, or is commonly known to the trade as, "spoofing" (entering a Bid/Offer with the

intent to cancel the Bid/Offer before execution); or (iv) is any other manipulative or disruptive

trading practice prohibited by the Act or Commission Regulations.

NEX SEF-2018-R-3-Exhibit B
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NEX SEF will take into account a number of factors in determining whether an orderly market exists. 

An orderly market may be characterised by, among other things, parameters such as a rational 

relationship between consecutive prices, a strong correlation between price changes and the volume of 

trades, levels of volatility that do not dramatically reduce liquidity and accurate relationships between 

the price of a derivative and the underlying. Volatility alone, however, will not be presumptively 

interpreted as disorderly or disruptive as market volatility can be consistent with markets performing 

their price discovery function.

Examples of prohibited activity

Examples of prohibited activity include, but are not limited to: 

Pulsing 

Pulsing results from Bid/Offer submissions followed by immediate interrupts (e.g. <1000msecs) 

repeatedly at the same price level or between two price levels, for an extended period of time. The 

Bids/Offers are short in duration and do not result in a Deal. 

Flashing 

a) Flashing at top of book results when a Bid/Offer: 

i. Is submitted at ‘flash height’ (configurable by the Facility) or more (pips) better than the Order 

Book best price on the same side of the market, 

ii. Is interrupted within ‘flash time’ (configurable by the Facility), 

iii. Is not involved in any Deals, and 

iv. The Order Book best price at interruption is not better than the Bid/Offer price 

b) The criteria for monitoring flashing are: 

i. Flash height (varies by pair), e.g. >= 0.1 pip, 0.5 pips, 1.0 pips 

ii. Flash time (varies by pair), e.g. <= 500ms / <=750ms / <=1000ms 

c) Premature Quote Interrupts (PQIs) result from any Quote submission which is: 

i. Interrupted within a ‘flash time’, and 

ii. Not involved in any Deals 

Passive hits inside the spread / Pinging / Firing in the dark 

These types of behaviour involve the speculative entry of multiple hit submits within the spread at 

multiple price points in order to ascertain the presence and level of hidden Bids/Offers. 

Passive hits outside the spread / Warming up / Priming / Quote stuffing 

These types of behaviour involve the entry of multiple Bids/Offers or hit submits outside of the spread 

and without genuine intent to trade to seek to gain technological advantage and/or to obfuscate the 

market view of other Participants. 

Spoofing 

Spoofing is typically defined as the entry of relatively short-lived Bids/Offers at or near the top of the 

Order Book in an attempt to affect the execution of opposite interest. 

An example of spoofing is where a Participant places buy (or sell) Bids/Offers that it does not intend to 

have executed, and then immediately enters numerous sell (or buy) Bids/Offers for the purpose of 
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attracting interest to the resting Bids/Offers. The Participant placed these subsequent Bids/Offers to 

induce, or trick, other Participants to execute against the initial, Bid/Offer. Immediately after the 

execution against the resting Bid/Offer, the Participant cancels the open Bids/Offers.

Order Book Shaping/Layering 

Similar to spoofing, these types of behaviour are characterised by the entry of multiple Bids/Offers

which are designed to give a false impression of liquidity and depth and which do not have genuine 

intent to trade. 

Laddering / Price stepping / Price topping / Momentum ignition 

These types of behaviours involve the submission of a sequence of Bids/Offers and/or executions to 

create actual or apparent active trading with the intent to raise or depress the price to induce a sale or 

purchase by other Participants. 

Shadow Pipping

Shadow Pipping is defined as placing new Bids/Offers at the top of the Order Book within a short 

timeframe of the previous Bid/Offer appearing in the Order Book and only keeping the “pipping order” 

in the market while the price immediately behind remains in the Order Book. 

In practice, this activity is demonstrated by the shadow Bid/Offer going to the top of the Order Book 

and being retracted immediately or within a short period of time if the preceding Bid/Offer is retracted. 

Factors the Facility will consider in determining whether behaviour constitutes shadow pipping include:

i. the frequency of such Bids/Offers;

ii. the ratio of such Bids/Offers to the volume of “make” trades being executed;

iii. the duration for which the Bid/Offer is exposed to the market; and 

iv. the overall market use of such behaviour (e.g. Participants utilising pipping 3% of the time 

versus single Participant utilising pipping 50% of the time in comparison to overall trading 

activity).

Entering Bids/Offers to achieve queue position at certain price levels and, given changing market 

conditions, modification or cancellation of those Bids/Offers is acceptable practice in the absence of 

other contradictory indicators such as frequency of such behaviour compared to the overall market or 

clear market forces in play such as volatility etc. 

Enforcement/penalties for non-compliance:

The Facility will typically regard as more serious a breach which is deliberately or recklessly committed, 

giving consideration to factors such as whether the Participant has given no apparent consideration to 

the consequences of the behaviour that constitutes the breach. 

Chapter 5 of the Facility Rulebook sets out the sanctions that the Facility may impose in consequence 

of a breach of NEX SEF Rule 406, which include fines, restitution orders, suspensions and revocation 

of Trading Privileges, and summary fines. Failure to co-operate with the Facility is a Violation of NEX 

SEF Rule 206. 

ACTIVE 230932749