December 3, 2015

The SEC announced fraud charges against three Chicago-based traders, twin brothers Behruz and Shahryar Afshar and their friend and former broker Richard Kenny, for circumventing market structure rules through a pair of options trading schemes.  Options exchange rules provide that a non-broker-dealer that places more than 390 orders in options per day (on average) during any month will be designated as a “professional” for the next quarter.  This designation applies to all accounts beneficially owned by a trader.  The SEC alleges that despite far exceeding this threshold in every quarter between October 2010 and December 2012, the Afshar brothers were able to trade as non-professionals, thus obtaining execution priority and lower fees, by alternating their trading between accounts and falsely representing the ownership of their accounts.  The SEC also alleges that the defendants engaged in a “spoofing” scheme in which they placed non-bona fide orders to take advantage of a “maker-taker” program offered by an options exchange to encourage liquidity.  SEC

Tagged in: Market Manipulation and Trading Violations, Securities Fraud,