Trader Fined $2.5m for Spoofing and Engaging in Deceptive Spoofing Scheme

The US Commodity Futures Trading Commission (CFTC) has announced that an Illinois district court has entered an order of permanent Injunction against Igor Oystacher and his proprietary trading company, 3Red Trading, after finding that he engaged in a manipulative and deceptive spoofing scheme.

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This occurred while he was trading at least five different futures contracts on four exchanges for more than two years in violation of the Commodity Exchange Act, and CFTC Regulations adopted pursuant to the CFTC’s anti-spoofing and expanded anti-fraud and anti-manipulation authority under the Dodd-Frank Act.

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The court’s order originates from a CFTC Complaint filed in October 2015, charging Oystacher and 3Red with spoofing and employment of a manipulative and deceptive device while trading E-Mini S&P 500, copper, crude oil, natural gas, and VIX futures contracts.

Findings

According to the CFTC, Oystacher and 3Red intentionally and repeatedly engaged in a manipulative and deceptive spoofing scheme while trading the spot-month contracts in the E-Mini S&P 500 futures contracts on the Chicago Mercantile Exchange (CME), crude oil and natural gas futures contracts on the New York Mercantile Exchange (NYMEX), copper futures contracts on the Commodity Exchange Inc. (COMEX) and the Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term index (VIX) futures contract on the CBOE Futures Exchange (CFE) on at least 51 trading days between December 2011 and January 2014.

Oystacher and 3Red engaged in the scheme by manually placing passive displayed orders at or near the best price on one side of the market behind existing orders in such size or number that it created a false or misleading impression of Market Depth Market Depth Market Depth is a characteristic of a given market and its ability to handle large order sizes without materially affecting the price of the underlying asset or currency pair. Broad-based definitions of market depth characterize it as a function of liquidity and trading volume.In its most simplistic sense, market depth reflects a real-time list displaying the quantity to be sold versus unit price. This in turn is organized by price level and is reflective of real-time market activity. In theory, Market Depth is a characteristic of a given market and its ability to handle large order sizes without materially affecting the price of the underlying asset or currency pair. Broad-based definitions of market depth characterize it as a function of liquidity and trading volume.In its most simplistic sense, market depth reflects a real-time list displaying the quantity to be sold versus unit price. This in turn is organized by price level and is reflective of real-time market activity. In theory, Read this Term and then subsequently cancelling those orders simultaneously or nearly simultaneously with the entry of an order at the same or better price on the opposite side of the market.

The strategy employed allowed Oystacher and 3Red to buy or sell futures contracts in quantities and/or at price levels that would not have otherwise been available to them in the market, absent the spoofing conduct.

Sanctions

Oystacher and 3Red are required to pay a $2.5 million penalty. The order also requires that an independent monitor assess and monitor all 3Red’s and Oystacher’s futures trading for three years in order to identify any future violations of the CEA and CFTC Regulations.

Furthermore, Oystacher and 3Red are required to employ specified compliance tools with respect to all of Oystacher’s futures trading on US exchanges for a period of 18 months.

The order further permanently prohibits Oystacher and 3Red from spoofing and employment of manipulative or deceptive devices while trading futures contracts, including entering bids or offers with the intent to cancel the bids or offers before execution.

Aitan Goelman, the CFTC’s Director of Enforcement, commented: “This Order sends a strong message to the financial markets that the CFTC will aggressively investigate, prosecute, and penalize spoofing and manipulative conduct, whenever they occur.”

The CFTC also recently instigated proceedings against Chicago futures broker Advantage Futures for spoofing trades which resulted in yet another hefty fine of $1.5 million, as reported by Finance Magnates in September.