For the second week in a row, ICE Futures U.S. settled a disciplinary action based on allegations of spoofing, where the alleged wrongful conduct purportedly constituted placing single large orders on one side of a market to influence the execution of single smaller orders on the other side of the market. In the most recent matter, Trevor Stanley agreed to pay a fine of US $30,000 and to serve a 120-day trading suspension on all IFUS markets to resolve charges that, from April 2016 to July 2016, he engaged in a “pattern of trading activity” involving the placement of a single large order involving the Russell 2000 Index Mini futures contract on one side of the market, and a small order on the opposite side. According to IFUS, Mr. Stanley would cancel the large order shortly after the small order was executed. IFUS claimed that Mr. Stanley’s trading activity caused “order book imbalances” prompting the execution of his smaller orders.
Two weeks ago, Dominick Minervini, a former floor broker registered with the Commodity Futures Trading Commission, agreed to pay a fine of US $200,000 to IFUS to resolve similar charges that he may have engaged in impermissible spoofing-type activity involving Sugar No. 11 futures contracts. According to IFUS, Mr. Minervini, on numerous occasions, created “order book imbalances” by entering a small order to buy or sell on one side of the market, and a large order to sell or buy on the other side of the market. The exchange claimed that on “numerous instances” Mr. Minervini would also cancel the large order after the small order was executed. (Click here for background regarding Mr. Minervini’s settlement in the article “Former Floor Broker Agrees to US $200,000 Fine to Resolve ICE Futures U.S. Spoofing Allegations” in the August 20, 2017 edition of Bridging the Week.)
Compliance Weeds: Although the overwhelming majority of reported spoofing cases brought to date by the CFTC and exchanges have involved layering of multiple orders on one side of a market against a single smaller order on the other side, it is possible that, under certain market conditions, a single large order could artificially drive the market in a particular direction. The two recent IFUS enforcement actions suggest that trading firms monitoring for potential spoofing activity might wish to consider refining their surveillance to try to capture this additional type of conduct (e.g., a small order placed on one side of the market is followed by placement of a large order on the other side of the market moving the market in a direction causing the small order to be executed. Afterwards the large order is immediately cancelled).