ICE, CME and NFX Revise Pre-Hedging Guidance for Block Trades: ICE, CME and NFX Publish Revised Guidance Related to the Scope of the Prohibition Against Pre-Hedging Block Futures Transactions

Sullivan & Cromwell LLP - November 7, 2016
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On October 25, 2016, each of ICE Futures U.S. and CME Group (“ICE” and “CME”, respectively), and on October 26, 2016, NASDAQ Futures, Inc. (“NFX”) issued updated guidance addressing the ability of a market participant to transact in futures while in possession of information related to a solicitation for a block futures transaction (as referred to in this notice, a “block trade”).  Prior to these releases, each exchange had expressly prohibited pre-hedging and anticipatory hedging in connection with block trades.
 

  • Under the new releases (which use identical language), ICE indicated that it is amending its Block Trade Frequently Asked Questions (“Block Trade FAQ”) document, CME indicated that it has updated its Market Regulatory Advisory Notice related to block trades (the “Block Trade MRAN”), and NFX indicated that it is amending its Off-Exchange Transactions Reference Guide (the “NFX Block Trade Guide”) in order to eliminate the restriction on pre-hedging or anticipatory hedging of block trades except in circumstances where an intermediary takes the opposite of its own customer order.  The guidance also clarifies that permitted activity may only include pre-hedging the position that they believe in good faith will result from the consummation of the block trade. 
  • ICE’s amended Block Trade FAQ became effective October 31, 2016, and the amended text is available here.  The updated CME Block Trade MRAN will become effective November 8, 2016, and it is available here.  The amended NFX Block Trade Guide will become effective November 10, 2016 for trade date starting November 9, 2016, and the NFX submission to the CFTC describing and supporting the amendment is available here.