Less than two weeks after civil and criminal charges were filed by the Commodity Futures Trading Commission and the US Department of Justice against Navinder Sarao for disruptive trading involving E-mini S&P futures on the Chicago Mercantile Exchange between April 2010 and April 2015, two traders were summarily barred without a hearing from trading on any CME Group exchange for 60 days because of their alleged spoofing activities on the Commodity Exchange, Inc. from March 1 through April 28, 2015.
According to CME Group, both Nasim Salim and Heet Khara engaged in a “pattern of activity” involving gold and silver futures contracts without an intent to trade. Neither Mr. Salim nor Mr. Khara is a member of COMEX.
Typically, alleged CME Group, both individuals would place multiple orders or layered orders on one side of the market to help effectuate an execution of a small order on the opposite side of the market. Once the small order was filled, the opposite orders were canceled.
CME Group also charged that, on occasion, Mr. Salim and Mr. Khara coordinated their activities:
In an example from April 28, 2015, Salim entered small-lot orders on one side of the market in Gold futures, after which Khara entered large orders on the opposite side. When Salim’s small orders were filled, Khara canceled the large orders.
CME Group said it was summarily suspending both individuals’ access to CME Group exchanges because of their alleged disruptive trading, as well as “failure to cooperate.” Both individuals are also prohibited from doing business with any CME Group member or member firm through June 29, 2015.
CME Group has the authority to summarily suspend members or non-members from access to all CME Group exchanges “upon a good faith determination that there are substantial reasons to believe that such immediate action is necessary to protect the best interests of the Exchange.” (Click here for access to CME Group Rule 413.A.)
This is not the first time the CME Group has brought a summary access denial action. In November 2012, for example, CME Group brought such an action against Peter Studemann for allegedly organizing trading activity to transfer funds from his customers’ accounts to his own or a friend’s account (click here to access background information).
In a civil lawsuit filed in a US federal court in Chicago on April 17, but made public on April 21, 2015, the CFTC charged Mr. Sarao and his trading company, Nav Sarao Futures Limited PLC, with engaging in spoofing and layering activity involving E-mini S&P futures contracts traded on the Chicago Mercantile Exchange for the purpose of disrupting the market in order to facilitate related trading that netted him profits in excess of US $40 million. Mr. Sarao was also accused of wire and commodities fraud, and manipulation in a criminal complaint in connection with the same activity. (Click here for further details in the article, “London-Based Futures Trader Arrested, Sued by CFTC and Criminally Charged With Contributing to the May 2010 “Flash Crash” Through Spoofing” in the April 22, 2015 edition of Between Bridges.)
Compliance Weeds: CME Group deems trading on any CME Group exchange to constitute consent to jurisdiction of that exchange as well as an agreement to comply by all of its rules (click here to access CME Group Rule 418). In connection with summary access denial actions, CME Group empowers its chief regulatory officer or designee to summarily deny any member or non-member access to any or all CME Group exchanges; access to the Globex platform; or access to any other trading or clearing platform owned or controlled by CME Group. This suspension may last up to 60 days, as well as for an additional 60 days upon mutual consent by the parties, or if ordered by the exchange’s business conduct committee after a petition by the Market Regulation Department.