Although some take issue with cheeky parody, most of us love a good spoof. Unless, that is, the spoof is the sort that lands you in hot water with financial regulators. Chicago-based trader and speed-chess champ Igor Oystacher and his firm, 3Red Trading LLC, found out the hard way that spoofing, at least in financial industry jargon, is no laughing matter. Indeed, financial spoofing—i.e. bidding on, or offering, futures with the intent to cancel before execution—was explicitly outlawed in 2010 with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).
Oystacher’s spoofs—which allegedly involved manipulation of at least six contract commodities markets including those for copper, crude oil, and natural gas—not only had Oystacher laughing all the way to the bank, but also brought him to the attention of the Commodities Future Trading Commission (CFTC). The CFTC hauled Oystacher into court in October 2015, alleging he ran a years-long scheme through which he “created the appearance of false market depth” and then exploited that depth and the resulting harm to other market participants to line his own pockets.
The CFTC announced last week it reached a preliminary settlement agreement with Oystacher and 3Red. The Commission was tight-lipped on particulars, revealing only the agreement to settle in principle and the concession that some details remain to be resolved.
Oystacher’s not the only spoofing fraudster to end up in the CFTC’s crosshairs. With a recent $2.69 million consent order related to gold and silver futures spoofing, and enforcements against Navinder Sarao—accused of contributing to the 2010 flash crash—and Michael Coscia, all signs point to regulator’s increasing interest in rooting out and punishing the practice.
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