On February 13, 2019, the Commodity Futures Trading Commission’s (“CFTC”) Division of Market Oversight (“DMO”) stayed[1] an ICE Futures U.S., Inc. (“IFUS”) self-certified rule amendment that is designed to build in a delay of the execution of resting, passive orders in IFUS’s gold and silver futures contracts.[2]   Under Section 5c(c)(2) of the Commodity Exchange Act and CFTC Regulations §§ 40.6(c) and 40.7(a)(2), DMO elected to stay IFUS’s certification of the proposed rule amendment on the grounds that “the rule or rule amendment presents novel or complex issues that require additional time to analyze.”  CFTC Reg. § 40.6(c).

Dubbed “Protective Order Protection” Functionality, IFUS’s proposal would build in a “speed bump” when an aggressing order reaches the central limit order book that would otherwise execute immediately against a resting, passive order.  The functionality is meant to level the playing field between traders with different amounts of latency in the communication of their orders to the IFUS matching engine.  Without the speed bump, traders with the least latency are capable of identifying price changes in related markets and trade against resting orders on the IFUS matching engine that have essentially become stale because of those changes in prices in the related markets.  Without the speed bump, market makers with greater latency are discouraged from quoting tighter bid/ask spreads for fear of being “picked off” by traders who are able to identify price changes in related markets and trade against the market/makers’ stale orders.  With the speed bump, market makers and other traders with greater latencies will have time to withdraw their orders that have become stale due to a price change in related markets and be incentivized to maintain tighter bid/ask spreads or more aggressive bids or offers.

The IFUS self-certification submission disclosed that it had received feedback from “the FIA Principal Traders Group (“FIA PTG”), who opposed ‘speed bumps’ in general and expressed concern that they could harm overall market quality, add complexity and provide a mechanism for potential trade practice abuse.”[3]

As part of the CFTC’s stay of the IFUS Submission, the CFTC is inviting public comment on IFUS’s proposed speed bump for its gold and silver contracts.  Comments must be submitted on or before March 15, 2019.