CHICAGO Futures market operator CME Group Inc (CME.O) plans to broaden its rules against wrongdoing at the request of federal regulators, the company said on Friday, a move that is expected to ramp up disciplinary action against traders.
Traders who engage in the manipulative practice known as spoofing are "the most immediate and likely target" of the rules changes, said Craig Pirrong, a finance professor at the University of Houston.
The U.S. Commodity Futures Trading Commission asked CME to include attempts to manipulate markets and engage in other types of fraudulent behavior in its list of general offenses, according to a notice the company sent to customers.
The owner of the Chicago Board of Trade and other exchanges has previously prohibited manipulation, fraud and other "bad faith" actions, but attempts at such activities were not expressly prohibited.
CME declined to comment beyond the notice. The CFTC had no immediate comment.
Regulators have focused in recent years on fighting spoofing, after a provision against it was implemented as part of the 2010 Dodd-Frank financial reform.
The practice typically involves using computer algorithms to influence market prices by placing electronic orders with the intent to cancel them before execution.
CME will have more latitude to pursue spoofers and other rogue traders under its expanded rules, Pirrong said.
"It is significant because it lowers the bar of proof and therefore makes it more likely that the CME will pursue these sorts of cases," he said about the change.
"The CFTC has long been quite concerned about the high standard required to prove manipulation."
CME, a self-regulatory organization, fines firms and individuals, and suspends and bans them from its markets for violations ranging from failing to supervise employees to wash trading, in which traders sell contracts to themselves to make a market look more active than it is.
By making attempts to engage in fraudulent or bad-faith actions into general offenses, CME's rule book "more closely tracks the prohibitions set forth" by the CFTC, according to the company's notice. The changes are set to take effect on Feb. 16.
In December, CME raised the maximum possible fine for rule breakers to $5 million per offense from $1 million in a bid to deter wrongdoing.
A month earlier, a British trader, Navinder Sarao, became the second person convicted of criminally spoofing U.S. futures markets.
(Editing by Matthew Lewis)