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U.S. Market-Manipulation Cases Reach Record (#GotBitcoin?)

CFTC and Justice Department target spoofing and other illegal tactics, helped by data-sharing deal with key exchange. U.S. Market-Manipulation Cases Reach Record (#GotBitcoin?)

Federal regulators have ramped up their pursuit of traders who use a bluffing tactic known as spoofing to manipulate market prices, enforcement officials said, leading to a record number of manipulation cases.

U.S. Market-Manipulation Cases Reach Record (#GotBitcoin?)
As part of the push, the Commodity Futures Trading Commission earlier this year quietly began receiving daily sets of market data from the world’s largest futures exchange, CME Group Inc.

CME handles around 85% of total U.S. futures-markets trading by volume. Regulators for the first time now have access to daily trading data with a one-day delay, giving them a much broader window into trading activity—and possible manipulation. Previously, the CFTC largely relied on CME staff and whistleblowers to spot spoofing.

The data-sharing agreement, effective as of February, comes as the CFTC and Justice Department both pursue traders engaged in spoofing, a practice outlawed by the 2010 Dodd-Frank Act. When spoofing, traders place fake orders to create the illusion of supply or demand, causing prices to swing up or down. The traders then profit from the move back as the market reverts to normal levels.

The CFTC brought a record 26 cases related to manipulative conduct and spoofing in the fiscal year ended Sept. 30. Several of those civil cases were accompanied by criminal charges filed by the Justice Department. Between 2009 and 2016, the average number of such cases brought was just five a year.

While spoofing is a problem in stock, bond and futures markets, it has been a particular focus of futures regulators and exchanges since the 2010 stock-market flash crash. Navinder Sarao, a British trader whom U.S. authorities charged with fraud, used an automated trading program to manipulate the market for S&P 500 futures contracts.

Regulators say having broader access to trading data makes it easier to identify spoofing and other market manipulations.

“Our ability to evaluate that data has helped us identify misconduct,” said James McDonald, the CFTC’s enforcement director.

In one recent case, the Justice Department charged three traders with manipulating stock-futures contracts that resulted in more than $60 million in losses for the firm that traded with them.

The data-sharing deal with CME came after the CFTC in 2014 pressed CME-operated exchanges to “continue to develop strategies to detect spoofing.” The regulator had grown frustrated by CME’s work in spotting and flagging manipulation.

Regulators and exchanges typically use statistical analysis to determine if a trader’s strategy relies on spoofing. In addition, they examine emails and other communication for signs of intent to spoof.

CME also has implemented new automated surveillance programs to monitor trader-messaging activity. This can help determine whether traders intended to engage in manipulation. The exchange employs more than 50 investigators who have experience working on anti-spoofing programs.

“Policing the market for disruptive trading practices continues to be a huge part of our regulatory investment and effort,” Thomas LaSala, CME’s chief regulatory officer, said in an email.

Cooperation between federal agencies was boosted by the government’s conviction of Mr. Sarao, whose 2016 guilty plea to criminal charges set a precedent for future spoofing cases. It spurred the Justice Department’s antifraud division to take on more spoofing cases, according to Mr. McDonald and Aitan Goelman, who was CFTC enforcement chief during the Sarao case. Meanwhile, the lead CFTC trial attorney on the Sarao case, Jeff Le Riche, moved to the Justice Department last year to help bring spoofing cases.

Updated: 11-9-2019

Tower Research to Pay $67 Million to Settle Spoofing Claims

Good morning. High-speed trading firm Tower Research Capital LLC agreed to pay $67 million to settle regulatory allegations that its traders manipulated the price of stock-index futures, the biggest penalty ever imposed by the U.S. derivatives watchdog in such a case.

New York-based Tower, which has been one of the most active participants in equity and derivatives markets, also signed a deferred-prosecution agreement with the Justice Department, which has worked closely with the Commodity Futures Trading Commission on such cases.

The resolution follows the guilty plea of two former traders at Tower who were involved in the scheme. Kamaldeep Gandhi and Krishna Mohan pleaded guilty to conspiracy to engage in wire fraud, commodities fraud and spoofing, while a grand jury indicted a third trader, Chinese citizen Yuchun “Bruce” Mao, on similar charges.

Messrs. Gandhi and Mohan are scheduled to be sentenced in February. Their lawyers didn’t immediately respond to messages seeking comment. Mr. Mao couldn’t be reached. Tower said it was “deeply disappointed” by the allegations and added that all three traders left the firm nearly six years ago. U.S. Market-Manipulation Cases Reach,U.S. Market-Manipulation Cases Reach,U.S. Market-Manipulation Cases Reach,U.S. Market-Manipulation Cases Reach

 

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U.S. Market-Manipulation Cases Reach Record (#GotBitcoin?)

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