CFTC Brings More Spoofing Charges

The CFTC filed a civil complaint in the U.S. District Court for the Northern District of Illinois charging a Chicago-based individual and his proprietary trading company with spoofing and the employment of manipulative and deceptive devices while trading on four different futures exchanges.

The CFTC alleged that the defendants:

• manually placed on one side of the market at or near the best bid or offer price large passive orders that were intended to be canceled before execution and thus are regarded as "spoof orders";

• placed the orders through accounts owned by the trading company to create the false impression of growing market interest in trading in a certain direction (either to buy or sell) and to induce other market participants to place orders on the same side of the market and at similar price levels as the spoof orders;

• canceled or attempted to cancel all of the spoof orders before they were executed and virtually simultaneously to "flip" their position from buy to sell (or vice versa) by placing at least one aggressive order on the other side of the market at the same or better price in order to trade with market participants that had been induced to enter the market by the spoof orders that were just canceled; and

• bought and sold futures contracts in quantities and at price levels that otherwise would not have been available to them in the market, absent the spoofing conduct.

The CFTC charged that the individual and his trading company intentionally and repeatedly engaged in a manipulative and deceptive spoofing scheme while trading in at least five futures products on at least four exchanges, including: E-Mini SP 500 futures contracts on the Chicago Mercantile Exchange, crude oil and natural gas futures contracts on the New York Mercantile Exchange, copper futures contracts on the Commodity Exchange Inc., and the volatility index futures contract on CBOE Futures Exchange.

The CFTC also alleged that the respondent's scheme created an appearance of false market depth that they exploited to benefit their own interests, while harming other market participants, and allowed them to buy or sell futures contracts in quantities and at price levels that would not have otherwise been available to them in the market, absent the spoofing conduct.

Related news: CME Imposes Permanent Bans on Traders (with Zwirb Comment) (October 13, 2015).