The Commodity Futures
Trading Commission (CFTC) has settled charges against Bitcoin trading platform
TeraExchange for failing to prevent “wash” and prearranged trading on
Tera, which is
provisionally registered as a Swap Execution Facility (SEF), is under the CFTC’s
jurisdiction and as part of the order has been required to ensure that there
are no future violations of its trading rules.
According to the CFTC,
on October 8, 2014, the only two market participants authorised at that time to
trade on Tera’s SEF entered into two transactions in an NDF contract based on
the relative value of the US dollar and Bitcoin (the Bitcoin swap).
The transactions were
for the same notional amount, price and tenor, and had the effect of completely
offsetting each other. At the time, these were the only transactions on
The Commission alleges
that Tera arranged for the two market participants to enter into the
transactions, telling one that the trade would be “to test the pipes by doing a
round-trip trade with the same price in, same price out, (ie, no P/L
[profit/loss] consequences) no custodian required”.
However, subsequent to
the transactions, Tera issued a press release and made statements at a meeting
of the CFTC’s Global Markets Advisory Committee (GMAC) announcing the
transactions, creating the impression of actual trading interest in the Bitcoin
swap. Neither Tera’s press release nor the statements at the GMAC meeting
indicated that the October 8 transactions were pre-arranged wash sales executed
for the purpose of testing Tera’s systems.
Dissent in the
As a provisionally
registered SEF, Tera is required under the SEF Core Principles of the Commodity
Exchange Act (CEA) and CFTC Regulations to enact and enforce rules prohibiting
certain types of trade practices on the SEF, including wash trading and
prearranged trading. Tera’s rulebook, in fact, prohibited those practices.
The CFTC notes in its
Order that “[t]hese facts should be distinguished from a situation where a SEF
or other designated contract market runs pre-operational test trades to confirm
that its systems are technically capable of executing transactions and, to the
extent that these simulated transactions become publicly known, makes it clear
to the public that the trades do not represent actual liquidity in the subject
Sharon Bowen, has since issued a dissenting statement criticising the decision
to settle with the Bitcoin exchange.
fictitious trading deserves a penalty. Tera Exchange facilitated wash trading and
prearranged trading in violation of the Commodity Exchange Act. That is why we
brought this case. I fundamentally disagree with the notion that they deserve
no penalty. Accordingly, I dissent,” says Bowen in the statement.