Chinatex traders engaged in wash trading in order to liquidate a long position in the account of an affiliated company and re-establish the position in its own account, to the ultimate benefit of its parent company, COFCO.
The Commodity Futures Trading Commission has charges Beijing-based COFCO Corp. and Chinatex Corp., Ltd., for wash trading, position limit violations, and reporting failures.
COFCO and Chinatex were ordered to pay a $720,000 civil monetary penalty to settle charges.
Chinatex washed trades to liquidate long position to benefit COFCO
According to the CFTC investigation, between April 22 and May 1, 2020, Chinatex traders engaged in wash trading in order to liquidate a long position in the account of an affiliated company and re-establish the position in its own account, to the ultimate benefit of its parent company, COFCO.
The traders accomplished this by entering purchase orders for ICE Cotton No. 2 futures in Chinatex’s account, while at the same time entering offsetting sale orders in the account of an affiliate.
The offsetting orders were for the same delivery month, and at prices that were typically within one price tick of each other. The traders structured the orders to ensure that one set of offsetting orders were filled before entering the next set. The orders were not intended to take a bona fide position in the market, but rather to liquidate and re-establish a position while minimizing risk and price competition.
The order also found COFCO liable for speculative position limit violations while trading ICE Cotton No. 2 futures contracts. According to the order, in March 2020, various aggregated subsidiaries of COFCO held net short positions in excess of the 5,000-contract single- and all-month position limits then applicable.
Similarly, in November 2021, several subsidiaries of COFCO held net short positions in excess of the 5,950-contract single-month position limit then applicable. The subsidiaries also failed to file certain required reports accurately reflecting their cash-market exposure.
In a separate action, ICE Futures U.S. settled a disciplinary action against Chinatex and an affiliate for trade practice violations, conduct detrimental to the exchange, unauthorized use of trader identification information, position limit violations, misuse of a hedge exemption, and failure to supervise.