CFTC’s Recent Spoofing Settlement

Emily HayesCase Studies, Market Rules & Responsibilities, Operations

CFTC-spoofing-cases

Igor Oystacher, the now-infamous trader nicknamed “the Russian,” and his proprietary trading firm, 3Red Trading, informed the Northern District of Illinois on October 19, 2016, that the parties agreed to settle with the CFTC on the agency’s spoofing allegations. The settlement announcement came after Oystacher and 3Red failed to convince the court to dismiss the case in September 2016. Yet, while the terms of the agreement are currently unavailable, this case demonstrates the federal government’s increasing scrutiny of market manipulation and suspect trading practices.

The CFTC alleged that Oystacher and 3Red engaged in spoofing when, on at least 51 occasions between December 2011 and January 2014, they manually placed large bids on at least four different exchanges they later intended to cancel. Specifically, the CFTC argued Oystacher and 3Red violated 7 U.S.C. § 6c(a)(5)(C) prohibiting spoofing as well as 7 U.S.C. § 9(1) and 17 C.F.R. § 180.1 banning the use of any manipulative or deceptive device to defraud while trading futures. In its complaint, the CFTC alleged that Oystacher’s actions created “the false impression of increased market depth and book pressure in order to fraudulently and manipulatively induce other market participants to place orders for contracts at price levels that they would not have placed but for the spoof orders.” Oystacher then allegedly “flipped” his orders from one side of the market to the other in less than or equal to five milliseconds. This practice, the CFTC argues, allowed Oystacher to achieve the same or better prices in the other side of the market before other traders understood and reacted to the false market depth and distorted book pressure Oystacher’s spoofed orders created. This differs from Michael Coscia’s actions that earned him a three-year prison sentence for holding simultaneous orders on both sides of the market to “trap” traders and gain an unfair advantage.

Oystacher may soon face criminal charges as well. Bloomberg reported in mid-October 2016 that the U.S. Attorney’s office in Chicago held a federal grand jury last year regarding Oystacher’s trading practices and that members of the U.S. Attorney’s office watched Oystacher’s preliminary-injunction hearing from the courtroom gallery this summer. Thus, the federal government’s recent actions against “spoofers” further evince the need for traders and trading firms to understand the law to ensure their actions do not lead to civil penalties, or worse, a criminal indictment.

 

Emily Hayes

Emily Hayes

Emily Hayes joined Ziliak Law in September of 2016 as a law clerk working with the Startups, Business and Corporate and Financial Industry Groups. She is in her third year of law school at Loyola University Chicago where she is a senior editor of the International Law Review. Read more...
Emily Hayes