Alert May 28, 2013

CFTC Issues Interpretive Guidance and Policy Statement Concerning Prohibitions on Disruptive Practices

The CFTC approved a final “interpretive guidance and policy statement” (the “interpretive statement”) providing guidance on Section 4c(a)(5) of the Commodity Exchange Act, which was added by the Dodd-Frank Act.  Section 4c(a)(5) makes it unlawful “for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that (A) violates bids or offers; (B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or (C) is, is of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).” The interpretive statement is intended “to provide market participants and the public with guidance on the manner in which [the CFTC] intends to apply the statutory provisions set forth in” Section 4c(a)(5).

The interpretive statement provides that the CFTC interprets Section 4c(a)(5) to apply to any trading, practices or conduct on a registered entity such as designated contract market or swap execution facility.  It also states that the CFTC does not interpret Section 4c(a)(5) as requiring manipulative intent.

In addition, the interpretive statement analyzes each of the three clauses prohibiting various actions.  For example, it states that the prohibition on violating bids and offers in clause (A) applies without regard to intent, while violating the prohibition on spoofing in clause (C) requires “some degree of intent…beyond recklessness.”