TRADER GO LIVE TRAINING (EN)
Study Material:
This training module is intended for both:
Please take the time to review the materials below and once you are comfortable with your level of understanding of the concepts presented in these materials, you can proceed to complete the quiz(zes).
Successful completion of this module is mandatory for a trader to trade in Live markets. Failure to complete the module will result in a call with our risk officers to assess what happened and whether the trader will have an opportunity to retake the module and move to Live at a later date.
In addition, all traders must retake this module – as updated from time to time – on an annual basis.
Reminder: General Trader Responsibilities
Before going Live, we want to remind you of your obligations under the agreements you signed with us when creating your trader ID. In particular the Compliance Agreement.
You have trading access to various marketplaces around the world through one or more of Select Vantage Inc., Epic Vantage Inc., True North Vantage Inc. or another affiliate (the "Select Group").
As a condition of such access, you must comply with all applicable marketplace trading rules, and all applicable regulations issued by the authorities that regulate such marketplaces.
The Select Group will use their best efforts to make available to you links to the applicable trading rules and regulations. However, it is ultimately your responsibility to know these rules and regulations before you trade.
In particular, you agree that you SHALL NOT:
1. Intentionally engage in wash trading. A "wash trade" is a trade in which there is no change in the beneficial ownership of the securities. Under no circumstances should you try to execute against your own posted orders or against the orders of another trader trading through Select Group.
2. Intentionally engage in team trading. "Team trading" involves two or more traders co-ordinating their trading activities, so that they actually trade as a team while giving the appearance of trading as separate individuals. In many countries, team trading can be considered fraudulent trading. To be safe, you should not discuss your specific trading intentions with other traders.
3. Intentionally manipulate the opening or closing price. This includes sending either large orders or multiple small orders around the time of the market open/market close, which are intended to improperly impact the opening/closing price.
4. Day trade through another trading platform, whether on your own account or for others, on days when you are trading through Select Group. (To be safe, we recommend you pre-clear all trading of your personal investment portfolio with your office manager.)
5. Provide friends, relatives or anyone else with trading recommendations in the securities you trade. (Not only could this require registration under the securities laws of the country where you live, this could be seen as an attempt to improperly influence the price of the securities you are trading.) Also, you should not under any circumstances share or discuss live market data with anyone other than your office manager.
6. Trade a security with knowledge of material, non-public information regarding the company (what is typically referred to as "insider trading"). Insider trading is a serious criminal offence in most countries.
7. Violate any other requirement or other compliance instruction issued from time to time by the Select Group
8. Undertake any activity that contravenes or could be perceived to breach local market conduct or abuse rules.
FAILURE TO COMPLY WITH THESE REQUIREMENTS MAY RESULT IN THE IMMEDIATE TERMINATION OF YOUR TRADING ACCESS, AS WELL AS NOTIFICATION OF YOUR ACTIVITIES TO THE APPROPRIATE REGULATORY AUTHORITIES.
THE SELECT GROUP ALSO RESERVES THE RIGHT TO WITHOLD TRADING PROFITS RESULTING FROM PROHIBITED TRADING ACTIVITY
Additional Internal Guidance
In addition to the Compliance Agreement, below is some additional guidance on steps you can take as a trader to ensure compliance with internal policies and procedures.
Trader ID Use:
You should only ever login to PPro8 with the ID created when you first registered with ALEF TRADERS. Using anyone else’s ID/access is a violation of our policies and procedures and will result in immediate termination of your trading access.
Communication:
You should not communicate with anyone in real-time about your trading strategy or intentions. This is to ensure there is no question as to the independence of your trading, or that of others.
Team Trading:
An extension on the prohibition on communication of your trading strategy or intentions in real-time, is that you should never trade based on information about the actions of another trader(s) either within your trader location, or at any other location/firm.
Responsiveness to Risk Inquiries:
From time-to-time, the risk team may contact your responsible trader location manager for an explanation of your trading activity. Such requests require a response providing a detailed explanation of the highlighted activity, including the economic rationale & trading strategy and any other information specifically requested. As a trader, you should ensure that you always understand why you are taking a trade/action, so that when questioned on any of your activity, you will be able to provide the required detailed response.
Global Regulatory Guidance
Although you may not actively trade in all of the markets directly covered by the guidance below, it is important that you review these materials and understand the implications. This is because in today’s global capital markets we are seeing a continued convergence of international regulations, which means that guidance in one region/market, should be considered when trading in other regions/markets as well.
Please keep the above in mind
IIROC – Guidance on Certain Manipulative and Deceptive Trading Practices
The Investment Industry Regulatory Organization of Canada (“IIROC”) enforces Canadian trading rules. In that role IIROC will periodically release guidance to market participants regarding interpretation of the Universal Market Integrity Rules (“UMIR”) and patterns of behavior which are of concern.
The full text of UMIR can be found here - http://www.iiroc.ca/industry/rulebook/Pages/UMIR-Marketplace-Rules.aspx
Traders who plan to trade in Canadian markets should take the time to review those rules in full.
All traders should review the Guidance on Certain Manipulative and Deceptive Trading Practices which was published by IIROC on February 14, 2013.
Specifically the response to question 1, reproduced below for convenience:
Related to the definition of Quote Manipulation provided by IIROC, traders should also be aware of the reminder sent to all offices in January 2018 regarding this practice. In particular that reminder highlighted the following three features as contributing to behaviours IIROC views as prohibited:
The ESMA Market Abuse Regulation ("MAR") went into effect in Europe on July 3, 2016. This regulation provides detailed definitions of the forms of trading behavior which may be viewed as manipulative – and thereby prohibited.
We expect that all traders have already reviewed the specifics of these regulations, but to verify your understanding of these applicable regulations, please find below links to relevant source documents, as well as select excerpts from the regulations.
https://www.esma.europa.eu/regulation/trading/market-abuse
From the Official Journal of the European Union 12.6.2014 L 173/I - L 173/61
Article 7 - Inside information
1. For the purposes of this Regulation, inside information shall comprise the following types of information:
(a) information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments;
(b) in relation to commodity derivatives, information of a precise nature, which has not been made public, relating, directly or indirectly to one or more such derivatives or relating directly to the related spot commodity contract, and which, if it were made public, would be likely to have a significant effect on the prices of such derivatives or related spot commodity contracts, and where this is information which is reasonably expected to be disclosed or is required to be disclosed in accordance with legal or regulatory provisions at the Union or national level, market rules, contract, practice or custom, on the relevant commodity derivatives markets or spot markets;
(c) in relation to emission allowances or auctioned products based thereon, information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more such instruments, and which, if it were made public, would be likely to have a significant effect on the prices of such instruments or on the prices of related derivative financial instruments;EN L 173/24 Official Journal of the European Union 12.6.2014
(d) for persons charged with the execution of orders concerning financial instruments, it also means information conveyed by a client and relating to the client’s pending orders in financial instruments, which is of a precise nature, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments, the price of related spot commodity contracts, or on the price of related derivative financial instruments.
2. For the purposes of paragraph 1, information shall be deemed to be of a precise nature if it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred or which may reasonably be expected to occur, where it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments or the related derivative financial instrument, the related spot commodity contracts, or the auctioned products based on the emission allowances. In this respect in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be precise information.
3. An intermediate step in a protracted process shall be deemed to be inside information if, by itself, it satisfies the criteria of inside information as referred to in this Article.
4. For the purposes of paragraph 1, information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments, derivative financial instruments, related spot commodity contracts, or auctioned products based on emission allowances shall mean information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
In the case of participants in the emission allowance market with aggregate emissions or rated thermal input at or below the threshold set in accordance with the second subparagraph of Article 17(2), information about their physical operations shall be deemed not to have a significant effect on the price of emission allowances, of auctioned products based thereon, or of derivative financial instruments.
5. ESMA shall issue guidelines to establish a non-exhaustive indicative list of information which is reasonably expected or is required to be disclosed in accordance with legal or regulatory provisions in Union or national law, market rules, contract, practice or custom, on the relevant commodity derivatives markets or spot markets as referred to in point (b) of paragraph 1. ESMA shall duly take into account specificities of those markets.
Article 8 - Insider dealing
1. For the purposes of this Regulation, insider dealing arises where a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates. The use of inside information by cancelling or amending an order concerning a financial instrument to which the information relates where the order was placed before the person concerned possessed the inside information, shall also be considered to be insider dealing. In relation to auctions of emission allowances or other auctioned products based thereon that are held pursuant to Regulation (EU) No 1031/2010, the use of inside information shall also comprise submitting, modifying or withdrawing a bid by a person for its own account or for the account of a third party.
2. For the purposes of this Regulation, recommending that another person engage in insider dealing, or inducing another person to engage in insider dealing, arises where the person possesses inside information and:
(a) recommends, on the basis of that information, that another person acquire or dispose of financial instruments to which that information relates, or induces that person to make such an acquisition or disposal, or
(b) recommends, on the basis of that information, that another person cancel or amend an order concerning a financial instrument to which that information relates, or induces that person to make such a cancellation or amendment.
3. The use of the recommendations or inducements referred to in paragraph 2 amounts to insider dealing within the meaning of this Article where the person using the recommendation or inducement knows or ought to know that it is based upon inside information.
4. This Article applies to any person who possesses inside information as a result of:
(a) being a member of the administrative, management or supervisory bodies of the issuer or emission allowance market participant;
(b) having a holding in the capital of the issuer or emission allowance market participant;
(c) having access to the information through the exercise of an employment, profession or duties; or
(d) being involved in criminal activities.
This Article also applies to any person who possesses inside information under circumstances other than those referred to in the first subparagraph where that person knows or ought to know that it is inside information.
5. Where the person is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out the acquisition, disposal, cancellation or amendment of an order for the account of the legal person concerned.
Article 12 - Market Manipulation
1. For the purposes of this Regulation, market manipulation shall comprise the following activities:
(a) entering into a transaction, placing an order to trade or any other behaviour which:
(i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances; or
(ii) secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level;
unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with Article 13;
(b) entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances, which employs a fictitious device or any other form of deception or contrivance;
(c) disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances or secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level, including the dissemination of rumours, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading;
(d) transmitting false or misleading information or providing false or misleading inputs in relation to a benchmark where the person who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark.
2. The following behaviour shall, inter alia, be considered as market manipulation:
(a) the conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply of or demand for a financial instrument, related spot commodity contracts or auctioned products based on emission allowances which has, or is likely to have, the effect of fixing, directly or indirectly, purchase or sale prices or creates, or is likely to create, other unfair trading conditions;
(b) the buying or selling of financial instruments, at the opening or closing of the market, which has or is likely to have the effect of misleading investors acting on the basis of the prices displayed, including the opening or closing prices;
(c) the placing of orders to a trading venue, including any cancellation or modification thereof, by any available means of trading, including by electronic means, such as algorithmic and high-frequency trading strategies, and which has one of the effects referred to in paragraph 1(a) or (b), by:
(i) disrupting or delaying the functioning of the trading system of the trading venue or being likely to do so;
(ii) making it more difficult for other persons to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; or
(iii) creating or being likely to create a false or misleading signal about the supply of, or demand for, or price of, a financial instrument, in particular by entering orders to initiate or exacerbate a trend;
(d) the taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a financial instrument, related spot commodity contract or an auctioned product based on emission allowances (or indirectly about its issuer) while having previously taken positions on that financial instrument, a related spot commodity contract or an auctioned product based on emission allowances and profiting subsequently from the impact of the opinions voiced on the price of that instrument, related spot commodity contract or an auctioned product based on emission allowances, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way;
(e) the buying or selling on the secondary market of emission allowances or related derivatives prior to the auction held pursuant to Regulation (EU) No 1031/2010 with the effect of fixing the auction clearing price for the auctioned products at an abnormal or artificial level or misleading bidders bidding in the auctions.
3. For the purposes of applying paragraph 1(a) and (b), and without prejudice to the forms of behaviour set out in paragraph 2, Annex I defines non-exhaustive indicators relating to the employment of a fictitious device or any other form of deception or contrivance, and non-exhaustive indicators related to false or misleading signals and to price securing.
4. Where the person referred to in this Article is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out activities for the account of the legal person concerned.
5. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 specifying the indicators laid down in Annex I, in order to clarify their elements and to take into account technical developments on financial markets.
ANNEX I
A. Indicators of manipulative behaviour relating to false or misleading signals and to price securing
For the purposes of applying point (a) of Article 12(1) of this Regulation, and without prejudice to the forms of behaviour set out in paragraph 2 of that Article, the following non-exhaustive indicators, which shall not necessarily be deemed, in themselves, to constitute market manipulation, shall be taken into account when transactions or orders to trade are examined by market participants and competent authorities:
(a) the extent to which orders to trade given or transactions undertaken represent a significant proportion of the daily volume of transactions in the relevant financial instrument, related spot commodity contract, or auctioned product based on emission allowances, in particular when those activities lead to a significant change in their prices;
(b) the extent to which orders to trade given or transactions undertaken by persons with a significant buying or selling position in a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, lead to significant changes in the price of that financial instrument, related spot commodity contract, or auctioned product based on emission allowances;
(c) whether transactions undertaken lead to no change in beneficial ownership of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances;
(d) the extent to which orders to trade given or transactions undertaken or orders cancelled include position reversals in a short period and represent a significant proportion of the daily volume of transactions in the relevant financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, and might be associated with significant changes in the price of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances;
(e) the extent to which orders to trade given or transactions undertaken are concentrated within a short time span in the trading session and lead to a price change which is subsequently reversed;
(f) the extent to which orders to trade given change the representation of the best bid or offer prices in a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, or more generally the representation of the order book available to market participants, and are removed before they are executed; and
(g) the extent to which orders to trade are given or transactions are undertaken at or around a specific time when reference prices, settlement prices and valuations are calculated and lead to price changes which have an effect on such prices and valuations.
B. Indicators of manipulative behaviour relating to the employment of a fictitious device or any other form of deception or contrivance
For the purposes of applying point (b) of Article 12(1) of this Regulation, and without prejudice to the forms of behaviour set out in paragraph 2 of that Article thereof, the following non-exhaustive indicators, which shall not necessarily be deemed, in themselves, to constitute market manipulation, shall be taken into account where transactions or orders to trade are examined by market participants and competent authorities:
(a) whether orders to trade given or transactions undertaken by persons are preceded or followed by dissemination of false or misleading information by the same persons or by persons linked to them; and
(b) whether orders to trade are given or transactions are undertaken by persons before or after the same persons or persons linked to them produce or disseminate investment recommendations which are erroneous, biased, or demonstrably influenced by material interest.
If you are now confident that you understand your general obligations under your agreements with the Select Group, as well as the specific rules and guidance as outlined above, Click what you agree.
This training module is intended for both:
- traders who are preparing to move to Live after having familiarized themselves with the trading platform, as well as all applicable market rules and regulations for the market(s) in which they intend to trade.
- traders who are redoing the module as per their responsibility to do so annually or lose market access.
Please take the time to review the materials below and once you are comfortable with your level of understanding of the concepts presented in these materials, you can proceed to complete the quiz(zes).
Successful completion of this module is mandatory for a trader to trade in Live markets. Failure to complete the module will result in a call with our risk officers to assess what happened and whether the trader will have an opportunity to retake the module and move to Live at a later date.
In addition, all traders must retake this module – as updated from time to time – on an annual basis.
Reminder: General Trader Responsibilities
Before going Live, we want to remind you of your obligations under the agreements you signed with us when creating your trader ID. In particular the Compliance Agreement.
You have trading access to various marketplaces around the world through one or more of Select Vantage Inc., Epic Vantage Inc., True North Vantage Inc. or another affiliate (the "Select Group").
As a condition of such access, you must comply with all applicable marketplace trading rules, and all applicable regulations issued by the authorities that regulate such marketplaces.
The Select Group will use their best efforts to make available to you links to the applicable trading rules and regulations. However, it is ultimately your responsibility to know these rules and regulations before you trade.
In particular, you agree that you SHALL NOT:
1. Intentionally engage in wash trading. A "wash trade" is a trade in which there is no change in the beneficial ownership of the securities. Under no circumstances should you try to execute against your own posted orders or against the orders of another trader trading through Select Group.
2. Intentionally engage in team trading. "Team trading" involves two or more traders co-ordinating their trading activities, so that they actually trade as a team while giving the appearance of trading as separate individuals. In many countries, team trading can be considered fraudulent trading. To be safe, you should not discuss your specific trading intentions with other traders.
3. Intentionally manipulate the opening or closing price. This includes sending either large orders or multiple small orders around the time of the market open/market close, which are intended to improperly impact the opening/closing price.
4. Day trade through another trading platform, whether on your own account or for others, on days when you are trading through Select Group. (To be safe, we recommend you pre-clear all trading of your personal investment portfolio with your office manager.)
5. Provide friends, relatives or anyone else with trading recommendations in the securities you trade. (Not only could this require registration under the securities laws of the country where you live, this could be seen as an attempt to improperly influence the price of the securities you are trading.) Also, you should not under any circumstances share or discuss live market data with anyone other than your office manager.
6. Trade a security with knowledge of material, non-public information regarding the company (what is typically referred to as "insider trading"). Insider trading is a serious criminal offence in most countries.
7. Violate any other requirement or other compliance instruction issued from time to time by the Select Group
8. Undertake any activity that contravenes or could be perceived to breach local market conduct or abuse rules.
FAILURE TO COMPLY WITH THESE REQUIREMENTS MAY RESULT IN THE IMMEDIATE TERMINATION OF YOUR TRADING ACCESS, AS WELL AS NOTIFICATION OF YOUR ACTIVITIES TO THE APPROPRIATE REGULATORY AUTHORITIES.
THE SELECT GROUP ALSO RESERVES THE RIGHT TO WITHOLD TRADING PROFITS RESULTING FROM PROHIBITED TRADING ACTIVITY
Additional Internal Guidance
In addition to the Compliance Agreement, below is some additional guidance on steps you can take as a trader to ensure compliance with internal policies and procedures.
Trader ID Use:
You should only ever login to PPro8 with the ID created when you first registered with ALEF TRADERS. Using anyone else’s ID/access is a violation of our policies and procedures and will result in immediate termination of your trading access.
Communication:
You should not communicate with anyone in real-time about your trading strategy or intentions. This is to ensure there is no question as to the independence of your trading, or that of others.
Team Trading:
An extension on the prohibition on communication of your trading strategy or intentions in real-time, is that you should never trade based on information about the actions of another trader(s) either within your trader location, or at any other location/firm.
Responsiveness to Risk Inquiries:
From time-to-time, the risk team may contact your responsible trader location manager for an explanation of your trading activity. Such requests require a response providing a detailed explanation of the highlighted activity, including the economic rationale & trading strategy and any other information specifically requested. As a trader, you should ensure that you always understand why you are taking a trade/action, so that when questioned on any of your activity, you will be able to provide the required detailed response.
Global Regulatory Guidance
Although you may not actively trade in all of the markets directly covered by the guidance below, it is important that you review these materials and understand the implications. This is because in today’s global capital markets we are seeing a continued convergence of international regulations, which means that guidance in one region/market, should be considered when trading in other regions/markets as well.
Please keep the above in mind
IIROC – Guidance on Certain Manipulative and Deceptive Trading Practices
The Investment Industry Regulatory Organization of Canada (“IIROC”) enforces Canadian trading rules. In that role IIROC will periodically release guidance to market participants regarding interpretation of the Universal Market Integrity Rules (“UMIR”) and patterns of behavior which are of concern.
The full text of UMIR can be found here - http://www.iiroc.ca/industry/rulebook/Pages/UMIR-Marketplace-Rules.aspx
Traders who plan to trade in Canadian markets should take the time to review those rules in full.
All traders should review the Guidance on Certain Manipulative and Deceptive Trading Practices which was published by IIROC on February 14, 2013.
Specifically the response to question 1, reproduced below for convenience:
- Are there trading strategies which could be employed through an automated order system that IIROC considers manipulative and deceptive practices?
- Layering: It is the position of IIROC that placing a bona fide order on one side of the market while simultaneously “layering” orders in the consolidated market display on the other side of the market without intention to trade is a contravention of Rule 2.2(2) and Policy 2.2, Parts 2 and 3 as inducing a false or misleading appearance of trading activity or artificial price. In this case, the purpose of the “layering” is to “bait” other market participants to react and trade with the bona fide order on the other side of the market at an artificial price.
- Quote Stuffing: It is the position of IIROC that the in put by a Participant or Access Person of excessive market data messages with the intent to “flood” systems and create “information arbitrage” opportunities for itself, is a contravention of Rule 2.2(1) as an activity which, by its very nature, will be considered to be a manipulative or deceptive method, act or practice.
- Quote Manipulation: IIROC is concerned about potentially manipulative activity intended to affect the price at which dark orders that are tied to prices on visible markets, trade in dark pools or visible markets. It is the position of IIROC that entering non-bona fide orders on visible markets in an attempt to change the best bid price and/or best ask price and affect the price calculation at which a trade will occur with a dark order, contravenes Rule 2.2(1), (2)(b) and Policy 2.2, Part 2(e). This activity (which may be combined with liquidity detection) results in a trade with a dark order at an improved price, following which orders are removed from the visible market.
- Spoofing: It is the position of IIROC that the entry of non-bona fide orders in the pre-opening on a marketplace that displays a “Calculated Opening Price” (indicating the price at which trading would commence based on the orders entered to that point on the marketplace), with the intent of affecting the Calculated Opening Price to the advantage of the party that entered the order, contravenes Rule 2.2(2) and Policy 2.2, Part 2(f).
- Abusive Liquidity Detection: IIROC is of the view that strategies which enter orders (disclosed or iceberg during the pre-open, or “pinging”) to detect the existence of a large buyer or seller with the intention to trade ahead of, rather than with, the large buyer or seller, is a manipulative and deceptive practice contrary to Rule 2.2(1). This strategy harms large trading interest when after a profitable price movement, the trades are reversed, or in the event the price moves contrary to the position taken, the trading interest of the large buyer or seller may be viewed as a free option to trade against.
Related to the definition of Quote Manipulation provided by IIROC, traders should also be aware of the reminder sent to all offices in January 2018 regarding this practice. In particular that reminder highlighted the following three features as contributing to behaviours IIROC views as prohibited:
- The entry by an SVI trader of an order on a lit market which has the effect of improving the NBBO;
- An execution in a dark market at an improved price; and
- The cancellation by the SVI trader of the original order in the lit market.
The ESMA Market Abuse Regulation ("MAR") went into effect in Europe on July 3, 2016. This regulation provides detailed definitions of the forms of trading behavior which may be viewed as manipulative – and thereby prohibited.
We expect that all traders have already reviewed the specifics of these regulations, but to verify your understanding of these applicable regulations, please find below links to relevant source documents, as well as select excerpts from the regulations.
https://www.esma.europa.eu/regulation/trading/market-abuse
From the Official Journal of the European Union 12.6.2014 L 173/I - L 173/61
Article 7 - Inside information
1. For the purposes of this Regulation, inside information shall comprise the following types of information:
(a) information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments or on the price of related derivative financial instruments;
(b) in relation to commodity derivatives, information of a precise nature, which has not been made public, relating, directly or indirectly to one or more such derivatives or relating directly to the related spot commodity contract, and which, if it were made public, would be likely to have a significant effect on the prices of such derivatives or related spot commodity contracts, and where this is information which is reasonably expected to be disclosed or is required to be disclosed in accordance with legal or regulatory provisions at the Union or national level, market rules, contract, practice or custom, on the relevant commodity derivatives markets or spot markets;
(c) in relation to emission allowances or auctioned products based thereon, information of a precise nature, which has not been made public, relating, directly or indirectly, to one or more such instruments, and which, if it were made public, would be likely to have a significant effect on the prices of such instruments or on the prices of related derivative financial instruments;EN L 173/24 Official Journal of the European Union 12.6.2014
(d) for persons charged with the execution of orders concerning financial instruments, it also means information conveyed by a client and relating to the client’s pending orders in financial instruments, which is of a precise nature, relating, directly or indirectly, to one or more issuers or to one or more financial instruments, and which, if it were made public, would be likely to have a significant effect on the prices of those financial instruments, the price of related spot commodity contracts, or on the price of related derivative financial instruments.
2. For the purposes of paragraph 1, information shall be deemed to be of a precise nature if it indicates a set of circumstances which exists or which may reasonably be expected to come into existence, or an event which has occurred or which may reasonably be expected to occur, where it is specific enough to enable a conclusion to be drawn as to the possible effect of that set of circumstances or event on the prices of the financial instruments or the related derivative financial instrument, the related spot commodity contracts, or the auctioned products based on the emission allowances. In this respect in the case of a protracted process that is intended to bring about, or that results in, particular circumstances or a particular event, those future circumstances or that future event, and also the intermediate steps of that process which are connected with bringing about or resulting in those future circumstances or that future event, may be deemed to be precise information.
3. An intermediate step in a protracted process shall be deemed to be inside information if, by itself, it satisfies the criteria of inside information as referred to in this Article.
4. For the purposes of paragraph 1, information which, if it were made public, would be likely to have a significant effect on the prices of financial instruments, derivative financial instruments, related spot commodity contracts, or auctioned products based on emission allowances shall mean information a reasonable investor would be likely to use as part of the basis of his or her investment decisions.
In the case of participants in the emission allowance market with aggregate emissions or rated thermal input at or below the threshold set in accordance with the second subparagraph of Article 17(2), information about their physical operations shall be deemed not to have a significant effect on the price of emission allowances, of auctioned products based thereon, or of derivative financial instruments.
5. ESMA shall issue guidelines to establish a non-exhaustive indicative list of information which is reasonably expected or is required to be disclosed in accordance with legal or regulatory provisions in Union or national law, market rules, contract, practice or custom, on the relevant commodity derivatives markets or spot markets as referred to in point (b) of paragraph 1. ESMA shall duly take into account specificities of those markets.
Article 8 - Insider dealing
1. For the purposes of this Regulation, insider dealing arises where a person possesses inside information and uses that information by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates. The use of inside information by cancelling or amending an order concerning a financial instrument to which the information relates where the order was placed before the person concerned possessed the inside information, shall also be considered to be insider dealing. In relation to auctions of emission allowances or other auctioned products based thereon that are held pursuant to Regulation (EU) No 1031/2010, the use of inside information shall also comprise submitting, modifying or withdrawing a bid by a person for its own account or for the account of a third party.
2. For the purposes of this Regulation, recommending that another person engage in insider dealing, or inducing another person to engage in insider dealing, arises where the person possesses inside information and:
(a) recommends, on the basis of that information, that another person acquire or dispose of financial instruments to which that information relates, or induces that person to make such an acquisition or disposal, or
(b) recommends, on the basis of that information, that another person cancel or amend an order concerning a financial instrument to which that information relates, or induces that person to make such a cancellation or amendment.
3. The use of the recommendations or inducements referred to in paragraph 2 amounts to insider dealing within the meaning of this Article where the person using the recommendation or inducement knows or ought to know that it is based upon inside information.
4. This Article applies to any person who possesses inside information as a result of:
(a) being a member of the administrative, management or supervisory bodies of the issuer or emission allowance market participant;
(b) having a holding in the capital of the issuer or emission allowance market participant;
(c) having access to the information through the exercise of an employment, profession or duties; or
(d) being involved in criminal activities.
This Article also applies to any person who possesses inside information under circumstances other than those referred to in the first subparagraph where that person knows or ought to know that it is inside information.
5. Where the person is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out the acquisition, disposal, cancellation or amendment of an order for the account of the legal person concerned.
Article 12 - Market Manipulation
1. For the purposes of this Regulation, market manipulation shall comprise the following activities:
(a) entering into a transaction, placing an order to trade or any other behaviour which:
(i) gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances; or
(ii) secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level;
unless the person entering into a transaction, placing an order to trade or engaging in any other behaviour establishes that such transaction, order or behaviour have been carried out for legitimate reasons, and conform with an accepted market practice as established in accordance with Article 13;
(b) entering into a transaction, placing an order to trade or any other activity or behaviour which affects or is likely to affect the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances, which employs a fictitious device or any other form of deception or contrivance;
(c) disseminating information through the media, including the internet, or by any other means, which gives, or is likely to give, false or misleading signals as to the supply of, demand for, or price of, a financial instrument, a related spot commodity contract or an auctioned product based on emission allowances or secures, or is likely to secure, the price of one or several financial instruments, a related spot commodity contract or an auctioned product based on emission allowances at an abnormal or artificial level, including the dissemination of rumours, where the person who made the dissemination knew, or ought to have known, that the information was false or misleading;
(d) transmitting false or misleading information or providing false or misleading inputs in relation to a benchmark where the person who made the transmission or provided the input knew or ought to have known that it was false or misleading, or any other behaviour which manipulates the calculation of a benchmark.
2. The following behaviour shall, inter alia, be considered as market manipulation:
(a) the conduct by a person, or persons acting in collaboration, to secure a dominant position over the supply of or demand for a financial instrument, related spot commodity contracts or auctioned products based on emission allowances which has, or is likely to have, the effect of fixing, directly or indirectly, purchase or sale prices or creates, or is likely to create, other unfair trading conditions;
(b) the buying or selling of financial instruments, at the opening or closing of the market, which has or is likely to have the effect of misleading investors acting on the basis of the prices displayed, including the opening or closing prices;
(c) the placing of orders to a trading venue, including any cancellation or modification thereof, by any available means of trading, including by electronic means, such as algorithmic and high-frequency trading strategies, and which has one of the effects referred to in paragraph 1(a) or (b), by:
(i) disrupting or delaying the functioning of the trading system of the trading venue or being likely to do so;
(ii) making it more difficult for other persons to identify genuine orders on the trading system of the trading venue or being likely to do so, including by entering orders which result in the overloading or destabilisation of the order book; or
(iii) creating or being likely to create a false or misleading signal about the supply of, or demand for, or price of, a financial instrument, in particular by entering orders to initiate or exacerbate a trend;
(d) the taking advantage of occasional or regular access to the traditional or electronic media by voicing an opinion about a financial instrument, related spot commodity contract or an auctioned product based on emission allowances (or indirectly about its issuer) while having previously taken positions on that financial instrument, a related spot commodity contract or an auctioned product based on emission allowances and profiting subsequently from the impact of the opinions voiced on the price of that instrument, related spot commodity contract or an auctioned product based on emission allowances, without having simultaneously disclosed that conflict of interest to the public in a proper and effective way;
(e) the buying or selling on the secondary market of emission allowances or related derivatives prior to the auction held pursuant to Regulation (EU) No 1031/2010 with the effect of fixing the auction clearing price for the auctioned products at an abnormal or artificial level or misleading bidders bidding in the auctions.
3. For the purposes of applying paragraph 1(a) and (b), and without prejudice to the forms of behaviour set out in paragraph 2, Annex I defines non-exhaustive indicators relating to the employment of a fictitious device or any other form of deception or contrivance, and non-exhaustive indicators related to false or misleading signals and to price securing.
4. Where the person referred to in this Article is a legal person, this Article shall also apply, in accordance with national law, to the natural persons who participate in the decision to carry out activities for the account of the legal person concerned.
5. The Commission shall be empowered to adopt delegated acts in accordance with Article 35 specifying the indicators laid down in Annex I, in order to clarify their elements and to take into account technical developments on financial markets.
ANNEX I
A. Indicators of manipulative behaviour relating to false or misleading signals and to price securing
For the purposes of applying point (a) of Article 12(1) of this Regulation, and without prejudice to the forms of behaviour set out in paragraph 2 of that Article, the following non-exhaustive indicators, which shall not necessarily be deemed, in themselves, to constitute market manipulation, shall be taken into account when transactions or orders to trade are examined by market participants and competent authorities:
(a) the extent to which orders to trade given or transactions undertaken represent a significant proportion of the daily volume of transactions in the relevant financial instrument, related spot commodity contract, or auctioned product based on emission allowances, in particular when those activities lead to a significant change in their prices;
(b) the extent to which orders to trade given or transactions undertaken by persons with a significant buying or selling position in a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, lead to significant changes in the price of that financial instrument, related spot commodity contract, or auctioned product based on emission allowances;
(c) whether transactions undertaken lead to no change in beneficial ownership of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances;
(d) the extent to which orders to trade given or transactions undertaken or orders cancelled include position reversals in a short period and represent a significant proportion of the daily volume of transactions in the relevant financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, and might be associated with significant changes in the price of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances;
(e) the extent to which orders to trade given or transactions undertaken are concentrated within a short time span in the trading session and lead to a price change which is subsequently reversed;
(f) the extent to which orders to trade given change the representation of the best bid or offer prices in a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances, or more generally the representation of the order book available to market participants, and are removed before they are executed; and
(g) the extent to which orders to trade are given or transactions are undertaken at or around a specific time when reference prices, settlement prices and valuations are calculated and lead to price changes which have an effect on such prices and valuations.
B. Indicators of manipulative behaviour relating to the employment of a fictitious device or any other form of deception or contrivance
For the purposes of applying point (b) of Article 12(1) of this Regulation, and without prejudice to the forms of behaviour set out in paragraph 2 of that Article thereof, the following non-exhaustive indicators, which shall not necessarily be deemed, in themselves, to constitute market manipulation, shall be taken into account where transactions or orders to trade are examined by market participants and competent authorities:
(a) whether orders to trade given or transactions undertaken by persons are preceded or followed by dissemination of false or misleading information by the same persons or by persons linked to them; and
(b) whether orders to trade are given or transactions are undertaken by persons before or after the same persons or persons linked to them produce or disseminate investment recommendations which are erroneous, biased, or demonstrably influenced by material interest.
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