WASHINGTON, December 26, 2016 — The Commodities Future Trading Commission (CFTC) announced a fine for a trading company it accused of using “a manipulative and deceptive device while trading futures on four different futures exchanges.” The CFTC announced that the Federal court in the Northern District of Illinois had levied the fine of $2.5 million against 3 Red Trading of Chicago, Illinois. According to a press release from the CFTC, “Specifically, the Order finds that 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 index (VIX) futures contract on the CBOE Futures Exchange (CFE) on at least 51 trading days between December 2011 and January 2014.” The CFTC first formally accused 3 Red Trading and its founder, Igor B. Oystacher, of deceptive practicesin October, 2015. Dodd-Frank, the landmark financial reform bill passed by Congress and signed into law, contains a section prohibiting spoofing, precisely what 3 Red Trading is accused of doing. In the case of financial instruments, spoofing is the practice, generally undertaken by high frequency traders (HFTs), whereby a plethora of buy or sell orders are placed by the HFTs’ high speed computers within a tiny window of time. There is no intent to execute these orders, however. They are canceled or withdrawn in less than a second, in order to manipulate the price of the underlying the security when bid-ask spreads are accessed on slower computing and order taking systems. The offending HFT orders are recalled immediately after the price goes the way the trader wants while regular firms and individual traders are still seeing the essentially fake prices (spoofed prices) on their systems and buy and sell accordingly. The HFTs pocket the difference. Read more at https://www.commdiginews.com/busine...g-chicago-hft-firm-75818/#yVkxwXFf5iVLbyUc.99
Mreh, this stuff is going on all the damned time. Nothing new here. It's just a bigger fine, and it WILL continue. Just look at Aardvark Trading. Search for it if you care. http://www.cmegroup.com/tools-infor...ulation+Advisories/Business-Conduct-Committee
So now they're moving beyond the kid trading from parents basement in London to the real culprits in the ongoing manipulation of the market. Interesting. I noticed this manipulation has not been pointed directly at the flash crash itself. So a kid in London can take the market down but the high-frequency traders that have the real firepower somehow are not complicit in those specific market crashes. Money is king.
Do you think a speedbump or other mechanical measure would be introduced to render such strategies useless?
The problem is that the exchange charges fees for these players to spoof per order but They price it Low enough to encourage them to play these games. If they were serious in providing a fair playing field, they would ban firms who put in bogus orders. Or They could increase the fees to the point where they can't make a profit spoofing. Money is king!
Exchanges like IEX have introduced their own perks that possibly draw people to them for equities, but how would competition be implemented for futures which all clear thru the same place right now?
The exchanges make money from this so why would they want to change? The regulator gets the heat from retail account losses only during flash crashes and then they need a scapegoat. In reality, the only one trading In front of the order spoofing are the other algorithms that trade the depth of order book. Of course these groups collectively have significant capital and drive the market up and down so it does directly affect everyone. If there was more transparency on the order flow including orders going in and out there would be enough smart people protesting that the regulator would force the exchanges to change their policies. But the exchanges charge not just for placing orders but also to view depth of market so the number of people getting access is also limited.
Not sure I understand; if a separate, competitive exchange came up that roadblocked HFTs, would they not get customers?
Let's hope IEX as the new 13th exchange can start getting the majority of the flow and then the other exchanges will have to follow. But that doesn't stop spoofing of orders deeper in the order book cause they are not impacted. The risk is higher for them but they are not locked in. CME is also looking to slow the order flow but only for retail clients to the benefit of market makers. They think this will provide greater liquidity cause makers can withdraw their orders quicker. In reality, it will create an illusion of greater liquidity in markets but execution will be crap and retail will be unhappy with their fills. I might want to go back to market making if they do that !