Oil Trading Firm Reaches Accord with CFTC to Settle Latest Spoofing Case

Dodd-Frank Act gives the CFTC explicit authority to crack down on spoofing.

A Texas oil trading firm that found that one of its traders used phoney trade orders to manipulate crude prices in a foreign futures exchange will pay a penalty of USD 250,000 to settle the ‘spoofing’ charges brought by the US Commodity Futures Trading Commission, the regulator said Friday.

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Spoofing in general is a practice in which a trader floods the market with fake orders by entering and quickly cancelling large buy or sell orders on an exchange, in order to fool other traders into thinking the market is poised to rise or fall.

The order found that during a period starting at least in September 2013 through October 2014, with the illegal activity peaking in August 2014, a trader at Logista Advisors LLC placed multiple orders for futures contracts with the intent to cancel the orders before their execution. The agency said that the trader’s spoofing strategies included submitting orders on opposite sides of the same market at nearly the same time.

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Nonetheless, the CFTC attributes the misconduct to the firm’s failure to train, direct and supervise its employee, who was responsible for crude oil futures trading. It contends that this failure resulted in him repeatedly engaging in the disruptive trading practice.

The agency noted in its statement: “After the trader’s misconduct, which occurred in August 2014, was detected by the exchange’s compliance department, Logista failed to satisfy its obligation to supervise an appropriate investigation that would enable Logista to provide accurate responses to the exchange’s inquiries.”

Regulators and exchanges have stepped up their policing of spoofing in recent years, however the people and firms they previously focused on were rather small-time. Earlier in January, Citigroup received a $25 million fine to settle charges that it spoofed the treasury futures market, the biggest spoofing settlement to date.

Though the tactic has long been used by some traders, regulators began clamping down on it only a few years ago. Specifically, the Dodd-Frank Act gives the CFTC the explicit authority to crack down on the practice.

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