Proprietary trading firm Arab Global Commodities DMCC (AGC) has just settled spoofing charges with the Commodity Futures Trading Commission (CFTC). The CFTC action centered on spoofing activity carried out by one of its employees engaging in copper futures trading during 2016.
The charges focused on a trader at Dubai-headquartered AGC, who had been accused of spoofing copper futures contracts traded on the Commodity Exchange, Inc. (COMEX). Between March and August 2016, the trader had been engaging in after-hours trading from home, exercising disruptive trading practices for illegal gain.
These actions have resulted in a $300,000 civil monetary penalty for AGC as well as a cease and desist order for the group. Spoofing is a prevalent issue, often taking the form of disruptive algorithmic trading, whereby traders can outpace other market participants to manipulate commodity markets.
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In particular, one of AGC’s traders had succeeded in habitually spoofing copper futures by placing multiple large orders (often in excess of 100 contracts) on one side of the book. In tandem, he had utilized a small resting order on the opposite side of the book – the larger order would be promptly cancelled when his small order was filled.
The practice is illegal and designated as spoofing, as outlined under Section 4c(a)(5)(C) of the Commodity Exchange Act. As such, traders are prohibited from entering into multiple bids or offers on a registered entity with the intent to cancel the bids or offers before execution.
The situation was more convoluted given that the trader had also succeeded in using another employee’s account to mask his own behavior. The unnamed trader has since had his employment terminated at AGC. On its part, AGC was cooperative with the CFTC, settling charges and immediately accepting responsibility for the trader’s misconduct, also taking internal measures to curb this behavior.
James McDonald, the CFTC’s Director of Enforcement, commented on the settlement: “This case demonstrates our continued commitment to rooting out disruptive trade practices like spoofing in our markets. We will continue to work together with our regulatory and law enforcement partners in pursuit of that goal.”