The US Commodity Futures Trading Commission (CFTC) has filed a total of eight charges against three banks and five individuals for spoofing in precious metals markets as well as other futures contracts.
The Commission issued orders filing and settling charges against Deutsche Bank, requiring it to pay a $30 million fine; UBS, which is to pay a $15 million fine; and HSBC, which will pay $1.6 million. All three banks consented to the orders without admitting or denying any of the accusations.
Deutsche and UBS are also ordered to undertake remedial relief, while HSBC is to take “specified steps to implement and strengthen their training, systems and controls to detect and deter spoofing” by its staff.
The CFTC has also brought charges against individuals who worked at those institutions, namely Andre Flotron, who worked on the precious metals desk at UBS, as well as James Vorley and Cedric Chanu, who both worked at Deutsche Bank in precious metals.
In addition CFTC has filed charges against individual traders Krishna Mohan, Jitesh Thakkar and his firm Edge Technologies; and Jiongsheng Zhao, for alleged spoofing e-mini S&P futures.
Thakkar has previously been a member of the CFTC’s Technical Advisory Committee, Edge Technologies was also named in the “Hound of Hounslow” spoofing case when it was alleged that convicted spoofer Navinder Sarao approached Edge to help his design a programme to assist his spoofing. Zhao, meanwhile, to found to have broken CME Group rules in November 2017 and was fined $35,000 and suspended from membership for 10 business days from November 10.
In an all too familiar pattern, the precious metals spoofing accusations against Deutsche and UBS are illustrated with transcripts of chat room conversations both internally at Deutsche Bank, but also between the Deutsche traders and UBS traders. HSBC’s Order does not provide transcripts of any kind, however.
The Order against Deutsche describes how the firm’s traders helped each other by flashing bids in the market to move the market and quotes one traders as saying he “love[s] electronic trading” because it was easy to trigger an algorithm.
The orders against UBS and Deutsche also highlight how the traders helped each other to achieve a “print” in the market to enable them to trigger orders from third parties. The traders would also share information about the levels at which their customer orders sat.
In the individual orders, Vorley and Chanu are also accused of teaching a new trader on the desk in Singapore how their alleged spoofing scheme worked – again the CFTC has published selective chat transcripts to highlight its case. Flotron is also accused of teaching a new trader spoofing techniques at UBS in the Order against him.
“Spoofing is a particularly pernicious example of bad actors seeking to manipulate the market through the abuse of technology,” says James McDonald, director of enforcement at CFTC. “The technological developments that enabled electronic and algorithmic trading have created new opportunities in our markets. At the CFTC, we are committed to facilitating these market-enhancing developments. But at the same time, we recognize that these new developments also present new opportunities for bad actors. We are equally committed to identifying and punishing these bad actors. The CFTC’s enforcement program is built around the twin goals of holding wrongdoers accountable and deterring future misconduct. We believe these goals are best achieved when we hold accountable not just companies, but also the individuals involved.
“As these cases show, we will work hard to identify and prosecute the individual traders who engage in spoofing, but we will also seek to find and hold accountable those who teach others how to spoof, who build the tools designed to spoof, or who otherwise aid and abet the wrongdoing,” he adds. “These cases should send a strong signal that we at the CFTC are committed to identifying individuals responsible for unlawful activity and holding them accountable.”