U.S. Futures Commission Merchant Settles CFTC Spoofing Charges
Commentary by Bob Zwirb
Citigroup Global Markets, Inc. ("CGMI"), a registered futures commission merchant and provisionally registered swap dealer, agreed to pay a $25 million civil monetary penalty to settle CFTC charges of spoofing and related supervisory failures.
The CFTC Order found that five of the firm's traders in U.S. Treasury futures markets engaged in spoofing, which the CFTC described as making a bid or offer with the intent to cancel it before execution. According to the CFTC Order, the traders' spoofing strategy involved placing bids or offers of 1,000 lots or more in order to create the impression of a swell in buying or selling interest. The CFTC Order determined that CGMI failed to supervise diligently its employees and agents, who created over 2,500 spoofing orders during the relevant period.
Commentary
The CFTC found that the trader's supervisors violated CFTC Rule 166.3 ("Failure to Supervise") by failing to comply with CGMI's existing policies regarding reporting violations of the CEA. This illustrates how the failure to comply with a firm's internal policy can result in a federal law violation.