Citigroup Hit with $25m Fine by CFTC for Spoofing, Supervisory Failures

Citigroup was handed a $25 million civil monetary penalty for its role in spoofing.

The U.S. Commodity Futures Trading Commission (CFTC) has just issued an order, effectively settling charges against Citigroup Global Markets Inc for its role in spoofing and unlawful execution, resulting in a $25 million civil monetary penalty, according to a CFTC filing.

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The enforcement action entails a prolonged period of spoofing, i.e. bidding or offering with the intent to cancel the bid or offer before execution. More specifically this entails Citigroup’s handling of US Treasury futures, which ultimately saw the group fail to properly supervise the activities of its employees and agents in conjunction with the spoofing orders.

2,500 Instances of Spoofing

The CFTC order also uncovered that five of its traders across its US Treasury and Swaps desks had engaged in spoofing more than 2,500 times in various Chicago Mercantile Exchange US Treasury futures products between July 16, 2011 and December 31, 2012.

As such, Citigroup’s traders had managed to place their spoofing orders to create or widen an imbalance in the order book, cancelling their spoofing orders. This also saw the systematic coordination of Citigroup’s traders with each other to foster the spoofing strategy.

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In conjunction with the $25 million civil monetary penalty, Citigroup was also required to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing and the CFTC regulation governing diligent supervision.

Supervisory Failures

Ultimately, the CFTC order determined that several supervision failures with regard to spoofing were evident, propagated by insufficient training about spoofing to traders on its US Treasury and Swaps desks – in this particular instance, the majority of Citigroup’s traders were given only rudimentary correspondence about spoofing, culminating in a single alert with ‘anti-spoofing’ language.

That Citigroup did also not possess adequate systems and controls to allay or detect spoofing by its traders on its desks also contributed to the issue. Finally, even when relevant alerts were given with regards to spoofing, involving one of the company’s own traders, its respective supervisor and other members failed to comply with existing policies designed to report violations.

According to the CFTC’s Director of Enforcement Aitan Goelman in a recent statement on the order: “Spoofing is a significant threat to market integrity that the CFTC will continue to vigorously investigate and prosecute.”

“Additionally, as this action shows, registrants with supervisory responsibilities must provide their employees with sufficient training and have in place adequate systems and controls to detect spoofing. Failure to do so will have significant consequences,” he added.

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