The Commodity Futures Trading Commission obtained a consent order against Eric Moncada in connection with its allegation that Mr. Moncada attempted to manipulate the December 2009 wheat futures contract traded on the Chicago Board of Trade on eight days during October 2009. According to the CFTC, on these days, Mr. Moncada manually placed and immediately cancelled numerous orders for 200 lots or more of the relevant futures contract or placed large-lot orders near the best bid or offer in a manner to avoid execution. The CFTC claimed that Mr. Moncada also placed small-lot orders on the opposite side of the market “with the intent of taking advantage of any price movement that might result from the misleading impression of increasing liquidity that his large lot orders created.” According to the Commission, Mr. Moncada cancelled 98 percent of the total volume of his large-lot orders typically within 2.06 seconds of entry, but sometimes as quickly as 0.226 seconds. To resolve this matter, Mr. Moncada agreed to pay a fine of US $1.56 million, refrain from trading any CFTC-regulated wheat futures or options for five years, and refrain from trading any product on a designated contract market or swap execution facility for one year, among other sanctions. This case was brought on facts that occurred prior to the adoption of the Dodd-Frank Act’s market disruption prohibitions and, had the facts been more current, likely now would have been prosecuted as a spoofing offense. (Click here for information on prior developments in this case in the article “Judge Rules Against Futures Broker Regarding Wash Sales in Wheat Manipulation Action” in the July 14 to 18 and 21, 2014 edition of Bridging the Week.)

Compliance Weeds: This case provides a good example that the prosecution of market disruption cases is nothing new for the CFTC or exchanges. This case also demonstrates that it is a misnomer to believe that market disruption may only be caused by so-called high-frequency traders. Here, the alleged spoofing-type transactions were placed manually, not by a machine. All Dodd-Frank’s new prohibited trading practices and the new CME Group rules proscribing certain disruptive trading practices have done is to provide the CFTC and the CME with new tools to prosecute conduct that formerly was seen by the CFTC as a form of manipulation or attempted manipulation, and by the CME as a violation of just and equitable principles of trade or similar catch-all provisions. (Click here to see a discussion of some recent cases brought by the CME based on old facts, which if brought today likely would have been brought under its disruptive trading practices prohibition in the article “Important Reminders Resonate From Recent CME Group and ICE Futures U.S. Disciplinary Actions in the September 22 to 26 and 29 edition of Bridging the Week.)