Swap Dealer Fined for Failing to Surveil for Spoofing

A swap dealer settled CFTC charges for technology failures that prevented the swap dealer from conducting surveillance that would have allowed it to detect potential spoofing.

According to the Order, a surveillance tool the swap dealer used to monitor for spoofing activity by its traders did not operate effectively. The CFTC found that, during two separate periods, the tool failed to surveil any of the futures data from a certain vendor. The CFTC said that once the first issue had been discovered, the swap dealer failed to put safeguards into place to prevent a recurrence. As a result, a second identical failure occurred, which was not discovered by the swap dealer for four months. The CFTC found that the swap dealer did not receive a substantial number of surveillance alerts that would have been generated during the two periods and that thousands of orders were not timely surveilled for spoofing.

The CFTC found that the swap dealer violated CEA Section 4s(h)(1)(B) ("Registration and regulation of swap dealers and major swap participants") and CFTC Rule 23.602(a) ("Diligent supervision").

To settle the charges, the swap dealer agreed to (i) a $500,000 civil monetary penalty and (ii) cease and desist from violating Section 4s(h)(1)(B) of the Act and Regulation 23.602(a).