Virtu Financial Global Markets, LLC agreed to pay a fine of US $75,000 to resolve a disciplinary action brought by the Chicago Mercantile Exchange claiming that on October 16, 2015, because of a programing error, an automated trading system malfunctioned and sold a Eurodollar futures contract, causing a 74-tick price movement. The exchange claimed that although Virtu’s alternative trading system automatically locked down after the “aberrant activity,” the firm unlocked the ATS by error, causing further price anomalies.
Unrelatedly, DBF GP, LLC, the general partner of a hedge fund, and David Lambert, the firm’s manger, consented to a fine of US $20,o00 by Cboe Futures Exchange and disgorgement of US $19,500 in connection with Mr. Lambert’s trading for DBF, whereby he purportedly entered orders for CFE VX futures that prompted price changes on Cboe’s corresponding options exchange. Mr. Lambert then allegedly traded against the options exchange’s participants at the non-bona prices and cancelled his futures orders.
DBF and Mr. Lambert agreed to be jointly and severally liable for the CFE fine. Mr. Lambert also agreed to a six-month trading suspension on all exchanges owned by Cboe Global Markets. The alleged conduct occurred on “several occasions” from July 30 through September 5, 2014.
Additionally, Shung-Han Liu and Ali Abbassi, both non-members, agreed to fines and trading suspensions imposed by the New York Mercantile Exchange for alleged spoofing-type trading activity. Mr. Abbassi purported disruptive trading occurred from April through June 2016. He consented to a fine of US $5,000 and a three-month all-CME Group trading suspension. Mr. Liu’s alleged wrongful conduct – which included using another person’s Tag 50 identification for one side of his trades – took place from October 7 through December 16, 2016. He was fined US $40,000 for his conduct and agreed to a 10-business-day all-CME Group trading suspension.
Also, a member firm of both the Chicago Board of Trade and CME was fined by both exchanges US $30,000, in aggregate, for misreporting open interest in various products on both exchanges on numerous dates in January 2017, and on the CBOT only in June 2017.
Compliance Weeds: The CFE disciplinary action is unusual because it appears to entail the placement of purported spoofing orders on a futures exchange to induce non-bona fide prices on a securities exchange. The alleged executions prompted by the futures orders appear to have occurred on Cboe's affiliated securities exchange.
Spoofing-type trading activity may occur across asset classes to the extent products are correlated. To the extent firms monitor for disruptive trading conduct, attention should be paid to the potential of problematic cross-asset activity.