CFTC Orders UK Trader to Pay $150,000 and Imposes a One-Year Trading Ban for Spoofing in WTI Futures

This week the CFTC, the US commodity futures regulator, announced this enforcement action involving multiple instances of spoofing in WTI light sweet crude oil futures contracts on CME NYMEX.

The CFTC found that between approximately 16 December 2021 through to at least 14 January 2022, the UK-domiciled trader had executed a spoofing strategy by placing an iceberg order on one side of the order book (whose order quantity was only partially visible in the order book) that he intended to execute, combined with a series of fully-displayed orders on the opposite side of the order book at the first few price levels, that he intended to cancel before execution. After the trader’s iceberg orders were filled, the trader would cancel his fully-displayed "spoof orders".

The Order contained several other corroborating facts:

• The trader’s fully-displayed spoof orders usually constituted a large percentage of orders resting at the top price levels at the time that they were placed;
• The quantity of the trader’s spoof orders was often several times larger than the visible quantity of the trader’s iceberg orders;
• The trader evidently entered the spoof orders with the intent to cancel them to create a false impression of buying or selling interest that would induce other market participants to cross the bid-ask spread to fill his iceberg orders;
• The trader either knew or recklessly disregarded the likelihood that the spoof orders would create the false appearance of market depth and result in a misleading impression about supply and demand that could affect the market at that time.

The trader was fined $USD 150,000 and received a one-year ban from trading on any CFTC-regulated venues and in all commodity interests.

 RegTrail Insights

While a comparatively compact Order, it does provide a useful level of detail of the underlying triggers in the trader’s behaviour.

The use of iceberg’s in the spoofing strategy to disguise the intended orders apparently attracted the attention of the Regulator’s surveillance team, as did the difference in order size between the iceberg orders that were intended to trade and the orders on the opposite side of the order book that were never intended to be traded.

It should also be noted that the trader was not located in the US, again demonstrating the CFTC’s willingness to enforce against non-US persons should any non-US traders feel insulated by national borders.