CME Rule 575, orders must be entered "in good faith and for legitimate purposes". Nice review by Gary DeWaal. This brings futures trading in-line with Dodd-Frank rules for other marketplaces. The high frequency business is going to change with adjustment to Rule 575. It is likely for the better, but the providing of liquidity is very complex and the law of unintended consequences is likely to be invoked. The key to liquidity is to have two way flow at all times so strong short-term reversals will not occur. To have liquidity, liquidity providers have to be compensated. How is this compensation provided if there are rules which limit market-making?
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