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Articles tagged by Spoofing

Spoofer Gets Three Years Convicted spoofer Michael Coscia has been sentenced to three years in jail by a US court – the first incarceration of its kind in the US. Coscia, head of proprietary trading firm Panther Energy, was convicted last year after he and ...
CME Bans Spoofer CME Group has issued a 60-day ban against a trader it accuses of spoofing in its gold and natural gas futures markets – the ban comes just weeks after a US court sentenced Michael Coscia to three years in jail for ...
An Incomplete Picture: Spotting the Spoofer in FX The incarceration of a trader convicted of spoofing has heightened awareness of the practice, but how hard is it to spot and how prevalent is it in FX? Colin Lambert investigates. “You have to be pretty desperate to resort to spoofing markets – especially on exchanges where it’s nigh on impossible to shield your activities,” argues a senior electronic trader in London. “Even in OTC markets it’s not easy to get away with given the MIS capabilities of firms today.”
“Hound of Hounslow” Faces the Kennel In what is being seen as a surprise move, Navinder Singh Sarao, the UK-based day trader accused by US authorities of spoofing markets and contributing to the May 2010 flash crash in US equities, has pleaded guilty in a US court appearance following his extradition from the UK. Sarao, nicknamed the “hound of Hounslow” because he operated at times from a bedroom in his parents’ house in that London suburb, was extradited after being accused of making almost $40 million by entering large bids and offers against his intended trading direction on CME stock futures.
Flash Crash Trader Fine Endorsed by US Court A US district court judge has entered a consent order brought by the US Commodity Futures Trading Commission (CFTC) against UK-based trader Navinder Singh Sarao. Sarao was accused by US authorities of helping to trigger the infamous flash crash in US equity markets in May 2010 and was extradited to the US recently. The order requires him to pay a $25,743.174.52 civil monetary penalty and $12,871,587.26 in disgorgement. It also permanently prohibits Sarao from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged, and imposes permanent trading and registration bans against him.
Why FX Needs a Unique Regulatory Approach Matt Kulkin, a partner at Steptoe and Johnson, explains to Profit & Loss deputy editor, Galen Stops, why a “copy and paste” approach to regulation won’t work for FX. FX is often referred to as an “unregulated” or “self-regulated” market, and yet in recent years bans have been fined billions of dollars by regulators for alleged infractions in this market, while criminal charges are being brought against FX traders in the US courts. Kulkin explains this disparity by pointing out that the entities involved this market are regulated and therefore subject to oversight by a various national authorities. However, unlike the securities markets or the OTC derivatives markets, there aren’t concrete regulations regarding the market place, he says.
FINRA Seeks Quicker Process on Disruptive Quoting The US Financial Industry Review Authority (FINRA) has filed a notice with the Securities and Exchange Commission that will enable it to clamp down on what it considers “disruptive quoting and trading activity” much quicker than is currently possible. In the filing FINRA notes that taking action against an alleged miscreant can take “several years” before it is concluded, but it points out that there are, “…certain clear cases of disruptive and manipulative behaviour or cases where the potential harm to investors is so large, that FINRA should have the authority to initiate an expedited proceeding to stop the behaviour from continuing”.
Prop Firm Fined for Spoofing 3Red Trading and its owner Igor Oystacher have been convicted of spoofing by a US District Court and fined $2.5 million. The case was brought by the US Commodity Futures Trading Commission (CFTC) and Judge Amy St. Eve of the US District Court for the Northern District of Illinois entered a Consent Order of Permanent Injunction finding that the defendants engaged in a manipulative and deceptive spoofing scheme while trading at least five different futures contracts on four exchanges for more than two years.
Jail Time for Singapore Spoofer A Singapore man has been sentenced to 16 weeks’ imprisonment for spoofing contracts for difference (CFD) markets in the city state.
Former Citi Traders Fined for Spoofing The US Commodity Futures Trading Commission (CFTC) has issued two separate Orders filing and settling charges against two former Citigroup traders for spoofing US Treasury futures markets. Stephen Gola and Jonathan Brims, who have been dismissed by the bank, are required to pay $350,000 and $200,000 in civil monetary penalties respectively. Both traders are banned from trading in the futures markets until six months after each has made full payment of his respective penalty. In addition, Gola and Brims are ordered to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing, as charged.
CFTC in First Non-Prosecution Agreements with Former Citi Traders The US Commodity Futures Trading Commission (CFTC) has for the first time entered into non-prosecution agreements with subjects of an official investigation into misconduct. The CFTC says it has signed the agreements with three former Citi traders, Jeremy Lao, Daniel Liao, and Shlomo Salant thanks mainly to what it terms their “timely and substantial cooperation, immediate willingness to accept responsibility for their misconduct, material assistance provided to the CFTC’s investigation of Citigroup, and the absence of a history of prior misconduct.”
BTMU Settles With CFTC Over Spoofing Charges The US Commodity Futures Trading Commission (CFTC) today issued an order filing and settling charges against The Bank of Tokyo-Mitsubishi UFJ (BTMU) for engaging in multiple acts of spoofing in a variety of futures contracts. Specifically, the CFTC finds that BTMU was responsible for spoofing contracts traded on the Chicago Mercantile Exchange (CME) and the Chicago Board of Trade (CBOT), including futures contracts based on United States treasury notes and eurodollars. BTMU is now required to pay a $600,000 civil monetary penalty and to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing. The CFTC became aware of the conduct through BTMU’s voluntary self-reporting of the wrongdoing.
Is Spoofing Now Easier to Prove? A note from US legal firm Crow & Cushing suggests that as well as the law on spoofing in financial markets being tougher than it was before, actually proving the offence is now potentially easier. The note compares the recently-upheld conviction of Michael Coscia for spoofing certain futures markets with the activities of what was known as The Radio Pool, a group of investors who artificially inflated the price of Radio Corporation of America (RCA) in the 1920s before selling out.
And Another Thing... I learnt a new phrase last week, “algo-baiting”, thanks to a former bond trader being fined £60,000 by the UK’s FCA for doing just such a thing. Reading the notice issued by the FCA, however, I find myself wondering why what the trader had done that was deemed illegal? At face value it looks like an open and shut spoofing case but with spoofing there generally is not an intention to deal - in this case I would argue there could have been.
CFTC Files Spoofing Charges Against Three Banks, Five Individuals 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.
And Another Thing... Last week in Illinois saw the US government respond to a motion to dismiss its indictment of Jitesh Thakkar, who is accused of aiding and abetting Navinder Sarao in his spoofing activities by providing him with the technology to conduct that strategy. The case has some serious implications for fintechs and software programmers to the financial markets industry generally, but what I really want to know is; assuming a successful conviction, what will the US Gun Lobby make of it?
And Another Thing... Spoofing is the low hanging fruit for prosecutors thanks to it being easy - especially on regulated venues - to spot. But this visibility should not just be about bringing charges, it should be used for preventative means. What interests me is how these alleged spoofers thought they could get away with it and in reality the only way they did is because the surveillance procedures in place at venue and institutional level were either too slow, inadequate, or non-existent.
And Finally... I quite like reading academic papers on the FX market structure – often they state the obvious, but just as often they get the hamster back on the wheel in my head. An interesting paper on spoofing and pinging in OTC FX markets was released recently, which does a great job of highlighting why platforms need to be on top of behaviour; how some LPs are nothing of the sort and how others’ behaviour could be confused with spoofing but shouldn’t be. The paper also provides support for my argument that Mark Johnson’s conviction should be over-turned.
In the FICC of It This week’s podcast was delayed because Galen Stops had difficulty connecting from Peru…that or the fact that our podcasters were intimidated by the quality of their guests the previous week and knew they couldn't match the standard! They overcome the fear factor, however and go on to discuss the local market in Peru as well as the broader issue of NDF market development, during which Colin Lambert thinks he sees positive signs coming out of Asia regarding electronification of these markets.
CFTC, DoJ Charges Former Tower Traders Over Spoofing The US Commodity Futures Trading Commission (CFTC) has issued an Order filing and settling charges against Kamaldeep Gandhi, in which Gandhi admits to engaging in manipulative and deceptive schemes, along with other individuals, which involved thousands of acts of spoofing with respect to a variety of futures products traded on the Chicago Mercantile Exchange, Chicago Board of Trade, New York Mercantile Exchange, and the Commodity Exchange (Comex). At the same time the US Department of Justice (DoJ) charged Gandhi and two alleged co-conspiritors, Bruce Mao and Krishna Mohan, with spoofing offenses and says Gandhi and Mohan have admitted to the charges.
And Finally... Regular readers will know I have what I believe to be a healthy level of scepticism over the use of AI and machine learning in trading. What will give me more confidence is the better embracing of adversarial AI, for only by imbuing an algo with a certain amount of cynicism will we empower it to trade effectively in markets because, and this is a point I have made before in these pages, it is quite easy to spoof an algo.
And Another Thing... We all know the traditional description of spoofing – placing bids and offers down the stack, with no actual interest in trading. But what about an FX trader using last look? Spoofing is about intention to deal, but does someone deliberately using last look in the wrong fashion have that intention? I would suggest they do not and the Foreign exchange industry might want to look at how it monitors last look if it is not to attract the unwanted attention of the authorities.
Former UBS Trader Fined by US Court for Spoofing A US District Court in Connecticut has issued a Final Judgment and Consent Order against Andre Flotron, a former precious metals trader for UBS, requiring him to pay a $100,000 civil monetary penalty for spoofing and engaging in a deceptive or manipulative scheme through his spoofing in violation of the Commodity Exchange Act (CEA) and CFTC Regulations. The Order also imposes a one-year trading and registration ban. Flotron was one of eight traders from three institutions charged by the Commodity Futures Trading Commission (CFTC) over a spoofing scheme.