In addition, the Commission understands that ICE Futures U.S. ("ICE") offers voluntary self-trade prevention functionality for preventing inter- and intra-company orders from matching in the exchange's matching engine. This functionality was initially designed to prevent the matching of inter- and intra-company trades by automatically rejecting the taking order. The Commission understands that in
16. What specific practices or tools have been effective in blocking self-trades, and what are the costs associated with wide-spread adoption of such practices or tools?
17. Please indicate how widely you believe exchange-sponsored self-trading controls are being used in the market.
18. Should self-trade controls cancel the resting order(s)? Or, instead, should they reject the taking order that would have resulted in a self-trade? If applicable, please explain why one mechanism is more effective than the other.
19. Should exchanges be required to implement self-trading controls in their matching engines? What benefits or challenges would result from such a requirement?
20. Please explain whether regulatory standards regarding the use of self-trading control technology would provide additional protection to markets and market participants.
21. If you believe that self-trading controls are beneficial, please describe the level of granularity at which such controls should operate (e.g., should the controls limit self-trading at the executing firm level? At the individual trader level?) What levels of granularity are practical or achievable?
22. If you believe that self-trading controls are beneficial, please explain whether exchanges should require such controls for market participants and identify the categories of participants that should be subject to such controls. For example, should exchanges require self-trading controls for all participants, some types of participants, participants trading in certain contracts, or participants in market maker and/or incentive programs? What benefits or challenges would result from imposing such controls on each category of participant?
4. Price Collars
The Commission is also inquiring about price collars for both orders and executions. Price collars on orders prevent orders outside of acceptable price ranges from either entering the order book or executing at extreme levels; in effect, collars prevent market or stop orders (which execute as market orders) from trading at levels far beyond that expected at order entry. Similarly, price collars for execution prevent an order that is already in the book from being executed by the matching engine if it is outside of the acceptable range. Price collars can be contract specific and dynamic, responding to changes in market prices and market volatility for each contract. Price collars may reduce realized volatility by preventing a large, aggressive order from sweeping the book and matching at prices outside the range allowed by the collar, or allowing isolated market orders to execute during periods when one-sided liquidity is extremely low. /79/
FOOTNOTE 79 The Commission currently estimates that about half of the trading firms operating ATS have limits that check orders against a specific price range before sending them to the exchange.
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