SUBMISSION COVER SHEET

IMPORTANT: Check box if Confidential Treatment is requested

Registered Entity Identifier Code (optional): 21-509

Organization: NEX SEF LIMITED ("NEX SEF")

Filing as a: DCM SEF DCO SDR 

Please note - only ONE choice allowed.

Filing Date (mm/dd/yy): 11/17/21 Filing Description: Issuance of Market Regulation 

Advisory Notice 2021-05 to Supersede Market Regulation Advisory Notices 2018-01 and 

2018-02 and Related Amendments to the Operational Parameters Annex.

SPECIFY FILING TYPE 

Please note only ONE choice allowed per Submission.

Organization Rules and Rule Amendments

Certification § 40.6(a)

Approval § 40.5(a)

Notification § 40.6(d)

Advance Notice of SIDCO Rule Change § 40.10(a)

SIDCO Emergency Rule Change § 40.10(h)

Rule Numbers: N/A

New Product Please note only ONE product per Submission.

Certification § 40.2(a) 

Certification Security Futures § 41.23(a)

Certification Swap Class § 40.2(d)

Approval § 40.3(a)

Approval Security Futures § 41.23(b)

Novel Derivative Product Notification § 40.12(a)

Swap Submission § 39.5

Official Product Name: 

Product Terms and Conditions (product related Rules and Rule Amendments)

Certification § 40.6(a) 

Certification Made Available to Trade Determination § 40.6(a)

Certification Security Futures § 41.24(a)

Delisting (No Open Interest) § 40.6(a) 

Approval § 40.5(a)

Approval Made Available to Trade Determination § 40.5(a)

Approval Security Futures § 41.24(c)

Approval Amendments to enumerated agricultural products § 40.4(a), § 40.5(a)

“Non-Material Agricultural Rule Change” § 40.4(b)(5)

Notification § 40.6(d)

Official Name(s) of Product(s) Affected: 

Rule Numbers: 
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 301 4645 christopher.bowen@cmegroup.com cmegroup.com

1

Christopher Bowen 

Managing Director and Chief Regulatory Counsel

Legal Department

November 17, 2021

VIA ELECTRONIC PORTAL

Mr. Christopher J. Kirkpatrick

Office of the Secretariat

Commodity Futures Trading Commission

Three Lafayette Centre

1155 21st Street, N.W.

Washington, D.C. 20581

Re: CFTC Regulation 40.6(a) Certification. Issuance of Market Regulation 

Advisory Notice 2021-05 to Supersede Market Regulation Advisory Notices 

2018-01 and 2018-02 and Related Amendments to the Operational 

Parameters Annex.

NEX SEF Submission No. 21-509

Dear Mr. Kirkpatrick:

Pursuant to Commodity Futures Trading Commission (“CFTC” or “Commission”) Regulation 40.6(a), NEX 

SEF Limited (“NEX SEF”) certifies to the Commission the issuance of NEX SEF Market Regulation Advisory 

Notice 2021-05 (“MRAN 2021-05”) which shall supersede MRAN 2018-01 Pre-Trade and Post-Trade 

Controls and MRAN 2018-02 Business Clock Synchronisation and related amendments to the Operational 

Parameters Annex (“OPA”) (collectively, the “Rule Amendments”) effective on December 3, 2021. 

NEX SEF is issuing MRAN 2021-05 to describe additional arrangements NEX SEF will put in place to 

ensure the fair and orderly functioning market as required under MiFID II / MiFIR and relevant secondary 

legislation. NEX SEF combined previously existing policies with respect to pre and post trade controls and 

business clock syncronisation as part of the OPA included as an exhibit to MRAN 2021-05. MRAN 2021-

05 will be posted on the NEX SEF website.

NEX SEF has reviewed the Swap Execution Facility core principles (“Core Principles”) as set forth in the 

Commodity Exchange Act (“CEA” or “Act”) and identified that MRAN 2021-05 may have some bearing on 

the following Core Principles:

Compliance with Rules: CEA Section 5h(f)(2)(A) requires a swap execution facility to establish 

and enforce compliance with its rules. The CFTC has implemented this statutory requirement by 

adopting: (1) CFTC Regulation 37.203(e), which requires a swap execution facility to have the 

authority to adjust trade prices or cancel trades when necessary to mitigate errors in orders 

submitted by members and market participants, and to make any related trade price adjustments 

or trade cancellations transparent to the market; (2) CFTC Regulation 37.206, which generally 

requires a swap execution facility to take effective disciplinary action against Participants that 

violate its rules. The issuance of the MRAN is intended to assist market participants in remaining 

in compliance with these rules. Accordingly, the foregoing items are in compliance with this Core 

Principle.

Availability of General Information: CEA Section 5h(f)(5) requires a swap execution facility to 

enforce rules that will allow it to obtain any necessary information to perform any of the functions 

described in Section 5h of the Act. As required by this Core Principle, NEX SEF is publicly issuing 

MRAN 2021-05 to ensure that market participants have updated guidance. 

Pursuant to Section 5c(c) of the Act and CFTC Regulation 40.6(a), NEX SEF hereby certifies that the Rule 

Amendments comply with the Act, including the regulations under the Act. There were no substantive 

opposing views to the Rule Amendments. 
300 Vesey Street New York, NY 10282 T 212 299 2200 F 212 301 4645 christopher.bowen@cmegroup.com cmegroup.com

2

NEX SEF certifies that this submission has been concurrently posted on the CME Group website at 

http://www.cmegroup.com/market-regulation/rule-filings.htmcmegrou.com.

Should you have any questions concerning the above, please contact the undersigned at 212-299-2200 or 

CMEGSubmissionInquiry@cmegroup.com.

 

Sincerely,

 /s/Christopher Bowen

Managing Director and Chief Regulatory Counsel

Attachment: Exhibit A: MRAN 2021-05
3

Exhibit A

MARKET REGULATION ADVISORY NOTICE

From NEX SEF Limited (“NEX SEF”)

To All Participants

Subject NEX SEF Operational Parameters Annex

Rule References 104, 205, 206, 310

Effective Date December 2, 2021

Notice Date November 16, 2021

Notice Number 2021-05

NEX SEF | Operational Parameters Annex

This MRAN consolidates and supersedes the following previously issued MRANs:

• MRAN 2018-01 Pre-Trade and Post-Trade Controls

• MRAN 2018-02 Business Clock Synchronisation 

This MRAN also includes at Appendix 1 the NEX SEF Operational Parameters Annex which 

describes various other arrangements NEX SEF has put in place to ensure the fair and orderly 

functioning of the market as required under MiFID II / MiFIR and relevant secondary legislation. 
4

Appendix 1

NEX SEF

Operational Parameters Annex
5

Introduction and Background

The NEX SEF is a Multilateral Trading Facility under MiFID II. Under MiFID II legislation (Directive 

2014/65/EU ("MiFID II") and Regulation 600/2014 ("MiFIR")), and relevant secondary legislation 

including regulatory technical standards ("RTS"), in particular Commission Delegated Regulation 

(EU) 2017/584 (“RTS 7”), as retained in UK law under the European Union (Withdrawal) Act 2018, 

NEX SEF Limited (“the Operator”) is required to have in place effective systems, procedures and 

arrangements to ensure the fair and orderly functioning of the markets that it operates. 

This Annex describes the various arrangements the Operator has put in place to meet its 

obligations. Where relevant, further technical details of each arrangement are set out within the 

Operator’s internal operational procedures. 

1. Pre-Trade and Post-Trade Controls

1.1. Pre-Trade controls

As per RTS 7 requirements, the NEX SEF governs the use of its electronic order systems through 

pre-trade controls on price, value of orders and order entry messaging thresholds. 

1.1.1. Price Controls

1.1.1.1. Price Check - AI

AI customers have several price check validations which are on (“Y”) by default, however, can be 

turned off (“N”) by the users via the logon response message. Hardcoded parameters such as XPips are hardcoded and cannot be controlled by the user.

Control Optional (Y/N)

Large DifferenceCheck Y
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PriceCheck Y

WideSpreadCheck Y

X-pips N

LargeDifferenceCheck: The AI server will reject a bid/offer price that varies (higher or lower) 

from the current Dealable Best bid/offer by more than the large difference pips for the currency 

pair. The default setting is “Y”. The Large Difference value is set and hard coded by the MTF per 

pair.

PriceCheck: If “Y” when submitting a bid/offer, a check is performed to determine if the price is 

inverted. If “Y”, orders with inverted prices are rejected (bid is greater than offer and vice versa). 

If “N”, and the order deviates from the market price by more than the X-Pips amount, the order is 

rejected. The default setting is “Y”. The X-Pips value is set per pair and hard coded by the MTF.

WideSpreadCheck: If “Y”, the Ai server ensures that a bid price less than the current Dealable 

Best Offer by more than the wide spread pips is rejected, and an offer that exceeds the current 

dealable Best Bid by more than the wide spread pips is rejected. If “N”, no restriction is in effect 

and the order is accepted. The default setting is “Y”. The Wide Spread value is set and hard coded 

by the MTF per pair.

X-Pips: Prevents the user submitting a Bid/Offer greater than the X-pips value through the other 

side best. The X-Pips value is stated per pair and hardcoded by the MTF and is not controlled by 

the customer. This parameter systematically prevents a GTC order being submitted that breaches 

the coded values.

1.1.1.2. Price Check - Manual 

Manual customers have several price check validations / warnings, some of which are enabled 

by the users. Hardcoded parameters such as X-Pips are hardcoded and cannot be controlled by 

the user.

Control Optional (Y/N)
7

Large Difference N

Check Rate N

Wide Spread Y

Bid > Dealable Offer Y

X-pips N

Large Difference: The GUI will provide a warning on the order request panel stating ‘Large 

Difference’ if the user attempts to enter an order which varies from the current Dealable Best bid 

/ offer. The user can enter this order by clicking or pressing the ‘SEND’ button a second time 

following the warning.

Check Rate: The GUI will provide a warning when the market rate and the Bid/Offer pips entered 

by the user varies by more than the Check Rate pips. The Check Rate value is set per pair and 

hard coded by the MTF. The user can enter this order by clicking or pressing the ‘SEND’ button 

a second time following the warning.

Wide Spread: The GUI will provide a warning when:

(Bid Side) The difference between the EBS Market Bid and the submitted Bid price is greater than 

the Wide Spread pips.

(Offer Side) The difference between the EBS Market Offer and the submitted Offer price is greater 

than the Wide Spread pips.

The Wide Spread value is set per pair and hard coded by the MTF. The user can enter this order 

by clicking or pressing the ‘SEND’ button a second time following the warning.

1.1.2. Value Controls

NEX SEF validates order submissions prior to their release to the matching engine. 
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▪ The minimum and maximum trade sizes are set per and hard coded by the MTF. 

▪ Order value minimums are market specific and set-out in the EBS Market – Guide to Pair 

Parameters which can be requested through EBS Customer Support. 

1.1.3. Message Transmission Controls 

1.1.3.1. Order Throttling

Ai

▪ EBS Market on a per AI session basis, enforces a throughput limit, defined as the number of 

new orders per rolling 5 seconds and the number of maximum active orders. 

▪ If a participant reaches this threshold then new order submissions will be rejected.

▪ Cancellation requests of existing orders will still be permitted.

▪ The current AI servers allow up to 3 sessions per server.

Manual

▪ The GUI does not have a systematically enforced throughput limit.

1.1.3.2. Minimum Quote Life

AI

▪ A ‘minimum quote life’ (MQL) is enforced for selected pairs and is applied at the AI server.

▪ Both cancellation and order amend requests are subject to the MQL value.

▪ If a participant submits a cancellation for a quote pre the MQL expiry period, that order will 

be held at the AI server until its expiry.

▪ The MQL values are specified on a per pair basis in the EBS Market – Guide to Pair 

Parameters which can be requested through EBS Customer Support. 

▪ The MQL values can be customised per AI session and thus per participant.
9

1.1.4. Counterparty Controls

1.1.4.1. Self-Match Prevention 

▪ Intra-floor dealing (IFD) is a parameter available on a per floor code basis which prevents two 

Trader IDs under that floor code from trading with one another. If the value is enabled then 

this will be permitted.

▪ IFD can be permissioned by the EBS Customer Support team.

1.1.4.2. Counterparty Restrictions

▪ The GUI will display a white price if the Best Bid/Offer available has been submitted by a 

user from the same floor code.

▪ Prices from counterparties which do not have a bilateral credit relationship with the user will 

not be shown on the GUI, unless that price is features as the EBS Best bid or offer above 

the credit-screened prices.

▪ Participants are required to maintain their own credit counterparty matrices through the 

Trading Floor Administrator utility.

1.2. Post-Trade Controls

1.2.1. Unexecuted Orders to Transactions Ratio

NEX SEF calculates the ratio of unexecuted orders to transaction for each of its participants at 

the end of every trading session in both volume terms and in number terms:

Volume terms: (Total volume of orders/Total volume of transactions) - 1

Number terms: (Total number of orders/Total number of transactions) - 1

Unexecuted orders to transaction ratios are monitored against the maximum thresholds, which 

have been determined taking into account the nature and liquidity of instruments on the NEX SEF 

and normal trading patterns. 
10

The thresholds are subject to ongoing review and calibration and participants will be notified via 

the appropriate channels of any changes to these thresholds. 

1.2.2. Other Fill Ratios

NEX SEF may calculate and monitor other fill ratios to promote the orderly functioning of its 

markets. These would also be communicated by Market Notice.

Currently NEX SEF operates NDF Quote Fill Thresholds calculated over a rolling four week 

interval as follows:

▪ Volume of Good Till Cancelled ("GTC") orders traded in USD millions / Number of GTC orders 

submitted

During any rolling 4-week calculation window, NEX SEF will inform participants if they are not 

meeting the fill ratio thresholds. Following this notification, the participant will be given a two-week 

warning period to bring their fill ratios into compliance with the thresholds.

After the warning period, should the participant fail to meet the established fill ratio requirement 

for the currency pair, this would be deemed to be disruptive behaviour. Participants will be formally 

notified that their behaviour has been flagged as disruptive and instructed to desist trading within 

24 hours via API in that currency pair for all timezones for a period of two weeks, after which they 

may resume trading.

2. Volatility Interruptions 

Article 48(5) MiFID II requires regulated markets to be able to temporarily halt or constrain trading 

if there is a significant price movement during a short period of time in a financial instrument on 

that market or a related market.

NEX SEF will monitor for significant price movements during short periods of time. In the event a 

price movement exceeds either a pre-defined static or dynamic threshold in a specific instrument, 

NEX SEF will review and determine whether to introduce a trading halt. 
11

3. Testing Facilities 

3.1. Overview 

All algorithmic participants trading on the NEX SEF are required, prior to trading in production, to 

test their algorithmic trading systems for both conformance to NEX SEF specifications as well as 

to ensure their trading systems will be able to handle, and not contribute to, disorderly trading

conditions.

The NEX SEF testing environment is strictly separated from the production environment and is

offered to participants, and prospective participants, on a scheduled basis to facilitate testing of 

their algorithms for conformance and for disorderly trading conditions. 

Test conditions representative of production are recreated in the testing environment. Within that 

environment, in addition to testing all aspects of conformance with NEX SEF specifications, 

participants can test their algorithms against a number of disorderly market conditions. 

3.2. Fair Usage

NEX SEF makes the testing environment available to participants and prospective participants 

for the purpose of conformance testing and to facilitate testing against disorderly trading 

conditions. There is no charge for the use of the testing facilities. 

It is not intended that participants and prospective participants use the NEX SEF testing facilities 

to evaluate and iterate on the profitability of their trading models. 

The NEX SEF reserves the right to restrict access to the testing facilities if usage is considered 

to be outside of expectations. 

4. Trading Venue Self-assessment 
12

RTS 7 sets out requirements for regulated market operators to assess at least once a year their 

compliance with the provisions of Article 48 of MiFID II including those relating to business 

continuity arrangements. 

The following parameters are taken into consideration in the self-assessment:

Nature

• Nature of trading venue, instruments offered and their liquidity status

• Role of the trading venue in the market, whether instruments covered can be traded 

elsewhere

Scale

• Potential impact of NEX SEF on the fair and orderly functioning of the market

• Number of algorithms operating on the venue

• Messaging capacity

• Trading volumes

• Percentage of algorithmic trading and traded volume vs total activity

• Percentage of HFT activity and traded volume vs total activity

• Number of participants

• Ratio of unexecuted orders to transactions

• Number and percentage of API trading members

• Number of co-location sites provided

• Number of countries with business activity

• Volatility management mechanisms, dynamic or static trading limits used to halt trading or 

reject orders

Complexity

• Complexity of the NEX SEF offering and technical infrastructure

• Asset classes offered

• Trading protocols supported (order book, auction, hybrid)

• Pre-trade transparency waivers used

• Trading system diversity and level of control of parameters, software versions, testing and 

reviews

• Trading system ownership, governance, operation and physical location

• Level of technical and operational outsourcing

• Frequency of changes to protocols, system and membership

5. Participant Due Diligence 
13

Prospective participants of the NEX SEF are required to meet the eligibility criteria and participant 

obligations set out in the NEX SEF Rulebook upon onboarding and on an on-going basis. 

Upon onboarding, NEX SEF will undertake KYC/AML checks and participants are required to 

complete a participant questionnaire to enable NEX SEF to review and assess the arrangements 

the participant has in place to meet the rules of the NEX SEF.

In accordance with MiFID II, NEX SEF requires each participant and prospective participant to 

maintain adequate organisational procedures relating to:

• Pre-trade controls on price and value of orders

• Post-trade controls on credit/clearing and market risk

• Usage controls on message transmission via API

• Software development control and conformance testing to the NEX SEF

• Ability to cancel one or all live orders via use of kill functionality

• Qualified and experienced staff in key positions

NEX SEF conducts a periodic risk-based assessment of its participants to review whether 

participants continue to meet the participant obligations set out above and in the NEX SEF 

Rulebook. 

6. Disorderly Trading Conditions 

6.1. Overview

In accordance with MiFID II, NEX SEF has put in place arrangements to prevent disorderly trading 

including:

• Pre-trade controls on price and value of orders;

• Usage controls on message transmission via API;

• Unexecuted orders to transactions ratios; 

• Mechanisms to manage volatility; and

• Kill functionality

All algorithmic participants trading on the NEX SEF are required, prior to trading in production, to 

test their algorithmic trading systems or strategies to ensure that they do not contribute to

disorderly trading conditions.
14

In the event of disorderly trading conditions, NEX SEF is required to notify its national competent 

authority, to inform participants that are subject to market making agreements that their 

obligations are suspended and to consider and communicate any further action to halt or constrain 

trading. 

6.2. Disorderly Trading Indicators 

The NEX SEF Rulebook defines disorderly trading conditions as a situation where the 

maintenance of fair, orderly and transparent execution of trades is compromised. 

NEX SEF will consider a number of indicators to determine disorderly trading conditions including 

but not limited to the following:

• the price discovery process is interfered with over a significant period of time; 

• the capacities of the NEX SEF’s trading systems are reached or exceeded; and

• failure of mechanisms designed to protect against the risk of algorithmic trading. 

6.3. Process Overview

6.3.1. Monitoring

NEX SEF monitors in real-time order entry rates and significant processes for its trading systems. 

Automated alerts are distributed when thresholds are breached based on defined internal 

procedures. 

6.3.2. Communication Protocol

Participants will be notified of disorderly trading conditions through the publication of a marketwide broadcast message. 
15

Participants that have entered into a market making agreement for the NEX SEF will be informed 

of the suspension of their obligations under their market making agreement until normal trading 

is resumed. 

NEX SEF will notify its national competent authority of the disorderly trading conditions via email 

to the usual supervisory contact. 

NEX SEF will consider and communicate any necessary additional measures such as trading 

halts or messaging restrictions. 

6.3.3. Resumption of normal trading 

Upon resumption of normal trading the communication protocol will be repeated and market 

making agreement obligations will apply to relevant participants. 

6.3.4. Post-mortem

The appropriate internal teams conduct a post-mortem incident review for the NEX SEF 

management body to include the following points:

• Key findings

• Customer experience

• Process improvement 

7. Kill Functionality 

7.1. Overview

NEX SEF participants must be able to cancel immediately, as an emergency measure, any or 

all of its unexecuted orders by means of its kill functionality. 
16

In accordance with RTS 7, NEX SEF operates a kill functionality to cancel unexecuted orders 

submitted by participants. Unexecuted orders may be cancelled at a single order level, at an 

instrument level or participant firm level. 

NEX SEF’s policy on the use of its kill functionality can be divided into three authorities:

• participant initiated;

• venue initiated; and

• regulator initiated 

7.2. Participant Initiated 

Participants may request the cancellation of unexecuted orders where the participant is 

technically unable to delete its own orders. Participants may call into Customer Support and 

request cancellation of one or many unexecuted orders.

Any such request must be made by an appropriately authorised individual and should include all 

necessary information relating to the orders to be cancelled. 

Participants may be asked to provide further information relating to any technical failures that 

may have rendered their own kill functionality inoperable. 

7.3. Venue Initiated 

NEX SEF may use its kill functionality where required to preserve market integrity in the event of 

the order book containing erroneous duplicated orders or following a suspension initiated by a 

market operator or competent authority. 

7.4. Regulator Initiated 

NEX SEF may use its kill functionality at the initiative of its national competent authority following 

an instrument suspension or further to an instruction to suspend a specific participant’s access to 

the trading systems. 
17

8. Suspension and removal of instruments 

The NEX SEF may suspend or remove an instrument from trading, unless such a step would be 

likely to cause significant damage to the interest of investors or the orderly functioning of the 

market. Furthermore, the competent authority may demand the suspension of an instrument from 

trading on the NEX SEF. 

8.1. Venue Initiated 

NEX SEF may decide to suspend or remove an instrument from trading under certain conditions 

including but not limited to the following:

• An International Securities Identification Number (ISIN – ISO 6166) is no longer assigned to 

the instrument

• The instrument is no longer available for trading, for example under foreign exchange 

restrictions

• There is little or no liquidity in an instrument over a significant period of time

• The suspension or removal is unlikely to cause significant damage to investors’ interest or 

the orderly functioning of the market

• If an instrument is suspended or removed, then any derivatives that reference that 

instrument will also be suspended or removed 

NEX SEF may seek the views of participants and its national competent authority prior to 

suspending or removing an instrument in order to determine the potential for significant damage 

to investors’ interests or the orderly functioning of the market including the potential to increase 

systemic risk or where continued availability of the instrument on the NEX SEF is necessary to 

perform critical post-trade risk management functions. 

8.2. Regulator Initiated 

NEX SEF may be required to suspend or remove a specific instrument from trading upon 

notification from its national competent authority. In this event, NEX SEF is also required to 

consider whether to extend the decision to include related derivatives or other instruments. 

NEX SEF will communicate any instrument suspension or removal to participants through the 

appropriate channels. 
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9. Business Clock Synchronisation 

NEX SEF and its participants are required to ensure that the business clocks they use to record 

the date and time of any reportable event are synchronised with the Coordinated Universal Time 

(UTC) issued and maintained by the timing centres listed in the latest Bureau international des 

poids et mesures. 

NEX SEF adheres to the levels of accuracy set out below taking into account that the gatewayto-gateway latency time of its trading system is above 1 millisecond. 

Gateway-to-gateway latency time of the 

trading system

Maximum divergence 

from UTC

Granularity of the 

timestamp

> 1 millisecond 1 millisecond 1 millisecond or better

Participants must ensure that their business clocks adhere to the level of accuracy prescribed in 

RTS 25 Annex Table 2, which is reproduced below.

Type of trading activity

Description Maximum 

divergence from 

UTC

Granularity of the 

timestamp

Activity using high frequency 

algorithmic trading technique

High frequency 

algorithmic 

trading technique

100 microseconds 1 microsecond or 

better

Activity on voice trading 

systems

Voice trading 

systems as 

defined in Article 

5(5) of 

Commission 

Delegated 

1 second 1 second or better
19

Regulation (EU) 

2017/583

Activity on request for quote 

systems where the response 

requires human intervention or 

where the system does not 

allow algorithmic trading

Request for 

quotes systems 

as defined in 

Article 5(4) of 

Delegated 

Regulation (EU) 

2017/583

1 second 1 second or better

Activity of concluding 

negotiated transactions

Negotiated 

transaction as set 

out in Article 

4(1)(b) of 

Regulation (EU) 

No 600/2014.

1 second 1 second or better

Any other trading activity

All other trading 

activity not 

covered by this 

table.

1 millisecond 1 millisecond or 

better