The Commodities Futures Trading Commission fined a division of Citibank $25 million in a spoofing scheme.
“The U.S. Commodity Futures Trading Commission (CFTC) issued an Order today filing and settling charges against Citigroup Global Markets Inc. (Citigroup) for spoofing — bidding or offering with the intent to cancel the bid or offer before execution — in U.S. Treasury futures markets and for failing to diligently supervise the activities of its employees and agents in conjunction with the spoofing orders.” The CFTC stated in a press release. “Citigroup’s unlawful conduct occurred between July 16, 2011 and December 31, 2012 (the Relevant Period), according to the Order. Citigroup is registered with the CFTC as a Futures Commission Merchant and provisionally registered as a Swap Dealer.”
Spoofing attempts to manipulate the short-term price of a security by placing a series of buy and/or sell orders which the trader has no intention of executing.
Once the price of the security has moved based on the non-executed orders, the orders are canceled.
CFTC Director of Enforcement Aitan Goelman commented: “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.”
The CFTC found the Citibank division to have engaged in spoofing on 2,500 occasions when trading US Treasury Futures on the Chicago Mercantile Exchange.
“According to the Order, the traders’ spoofing strategy involved placing bids or offers of 1,000 lots or more with the intent to cancel those orders before execution. The spoofing orders were placed in the U.S. Treasury futures markets after another smaller bid or offer was placed on the opposite side of the same or a correlated futures or cash market, the Order finds,” a press release from the CFTC stated.
The CFTC has placed a greater emphasis recently on spoofing scams; in October, it fined Chicago based 3 Red with a similar spoofing scam.
The Securities and Exchange Commission (SEC) has also been on the lookout for spoofing schemes in securities trading it oversees; in December 2015, the SEC charged the Afshar brothers with spoofing.
While the SEC oversees most securities trading, the CFTC oversees trading of commodity related securities.
Both are vulnerable to spoofing schemes.
Along with finding that traders engaged in spoofing, the CFTC found that Citibank management failed to oversee their traders.