DRW, a Chicago-based proprietary trading company, and its owner Don Wilson, accused of market manipulation by US regulator the Commodity Futures Trading Commission (CFTC), have made a last ditch effort to avoid the case going to trial on 1 December, according to a report in the Financial Times today.
The CFTC’s lawsuit has caught the attention of the trading industry as Wilson is a prominent figure in derivatives markets. According to the CFTC, DRW made at least $20 million after rigging prices of an interest-rate futures contract listed by Nasdaq. DRW meanwhile has denied the allegations and has taken the unusual step of wrestling with the regulator instead of settling up.
The commission said it only needed to show that DRW overtly “intended to affect market prices” to prove attempted manipulation but this was overruled in court. It was declared that the CFTC was incorrect and it must show that DRW also intended to create “artificial prices”. The judge ruled that a jury may conclude that artificial prices were DRW’s goal and refused to throw out the case.
The events highlight the obstacles involved in winning manipulation cases.
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The case was then transferred to another US judge with DRW’s lawyers filing a motion for reconsideration, arguing that the CFTC was incorrect. According to DRW’s lawyers: “There are no disputed issues of material fact to present to a jury and no trial is warranted.”
Tim Massad, CFTC chairman, was reportedly disappointed by the judge’s decision and told the FT: “The issue is, what does manipulation mean? We think any attempt to literally move the price, if you will, can be manipulation. Some people, including in that case, argue ‘Well, I thought the price was incorrect. It wasn’t the right market price. It was artificial.’ What does that mean?”
The events highlight the obstacles involved in winning manipulation cases. In this case, DRW argued it was “attempting to capture the difference between the interest-rate futures and equivalent over-the-counter derivatives”.
A DRW spokesperson commented: “The CFTC’s interpretation of the law, called ‘incorrect’ by the court, would have hindered price discovery and transparency, and prohibited legitimate trading practices that are vital for well-functioning markets.”