Both the Commodity Futures Trading Commission and the Chicago Mercantile Exchange brought and settled enforcement actions against Benjamin Cox, a CFTC-registered floor broker, claiming he engaged in spoofing trading activity on CME. The CFTC’s enforcement proceeding addressed Mr. Cox’s conduct from April 2014 through February 2018, while CME’s disciplinary action highlighted his alleged spoofing activity for a lesser period of time – June 2017 through February 2018.
The CFTC and CME each claimed that, during the relevant times, Mr. Cox entered “relatively” large bids or offers on one side of NASDAQ 100 and E-Mini S&P futures markets to encourage trading against smaller orders he placed on the other side of the markets. Both regulators claimed that Mr. Cox placed his larger orders with the intent to terminate them before execution.
To resolve the enforcement matters, Mr. Cox agreed to pay the CFTC a fine of US $150,000 and the CME a fine of US $50,000. He also agreed to a three-month trading prohibition on all CFTC-registered trading facilities, and a three-week access ban on all CME Group trading facilities – a period that overlaps the CFTC's trading prohibition.
Unrelatedly, the CFTC brought and settled an action against Curtis Dalton d/b/a Binary International for acting as a futures commission merchant without being appropriately registered, and offering off-exchange options and swaps contrary to law. The CFTC said such options and swaps had to be traded on or subject to the rules of a designated contract market. The CFTC alleged that from approximately October 2013 through May 2016, Mr. Dalton – acting in the name of Binary International – offered to enter into, entered into, and confirmed the execution of off-exchange binary options with retail persons that permitted investors to make predictive trades on the direction of the price movement of certain foreign currencies over designated time periods. Mr. Dalton resolved his CFTC action by agreeing to pay a fine of US $200,000 and never to solicit funds from any person for the purpose of trading commodity interests.
My View: Less than two months ago, the CFTC and the Chicago Board of Trade brought and settled parallel enforcement actions against Eagle Market Makers, Inc. for purportedly engaging in prohibited wash sales on multiple occasions during the pre-open trading periods of various agricultural futures products. Eagle agreed to pay US $350,000 to resolve the CFTC matter and US $150,000 to settle the CBOT matter.
At the time, I questioned the societal benefit of both the CFTC and the CBOT bringing parallel enforcement actions where all activity occurred on the CBOT and the CFTC and the CBOT charged Eagle with the same offense – wash sales. Additionally, the CBOT charged Eagle with failure to supervise.
Here, both the CFTC and CME charged Mr. Cox with spoofing, albeit the CFTC claimed that such conduct occurred for a longer period than the CME. However, both regulators relied on the same basic facts for their claims, and the time of trading prohibitions imposed by each regulator overlapped.
My thinking in June 2019 has not changed: “The CFTC has limited resources, and it is likely best that it restrict its enforcement activity to matters for which it has unique jurisdiction or a policy rationale to make a powerful statement. Where there is overlapping jurisdiction with [a self-regulatory organization], the CFTC should otherwise defer to the SRO’s handing of an enforcement matter.”