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Spoofing Season at the CFTC

Feb 21, 2019 5:29:42 PM

Trade Surv

Financial crime beat. This is spoofing season at the CFTC. Perhaps spoof-hunting season would be more apt. At the end of January in 2018, the CFTC announced ten separate actions against futures markets spoofers. The fines totaled about $46,000,000. Today, Feb. 8th 2019, we see the second announcement of the 2019 season, an enforcement action against a metals futures trader. The first, on 31 Jan, was a fine for a proprietary trader spoofing Soybeans. Perhaps the vigorous spoofer cull of 2018 has made them thin on the ground? Or perhaps they've become more wily.

Still, there are enough traders out there who think they won't be noticed. It's easy to see patterns like the one above in the futures markets--especially in the commodities futures complex. Spoofers think they can hide their activity under a smokescreen of benign quotes or trades (see example below). They think they'll slide under the hunter's scope by posting their spoof orders on the CME and benefiting in a correlated future on ICE.

Passive Spoof

But the spoof hunters are bringing ever more sophisticated weapons to bear. Fully automated surveillance systems like the one used to generate these images can pick out the manipulative patterns from among millions of legitimate quotes and trades. Market participants are are using such systems to scare off the spoofers before the regulators can bag them--or to bring them to the regulator already in the bag.

Dermot Harriss
Written by Dermot Harriss

Dermot Harriss joined OneMarketData in 2015, and is responsible for delivering solutions that help firms meet their regulatory compliance needs. Dermot brings over twenty years of financial industry experience from roles at Goldman Sachs, Morgan Stanley, and D.E. Shaw that included futures trading, quantitative strategy development, derivatives risk management, program trading, execution services, and technology management.

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