HSBC Securities (USA) Inc. has been slapped with a $1.6 million penalty by the Commodity Futures Trading Commission (CFTC) for engaging in spoofing – a form of market manipulation – involving gold and other precious metals futures contracts. The CFTC issued an order detailing the charges and settlement on January 29, 2018.
The investigation revealed that between July 16, 2011, and August 2014, a trader based in HSBC’s New York office executed a spoofing strategy on the Commodity Exchange, Inc. (COMEX). The trader placed orders with the intention of canceling them before execution, creating a false impression of market demand or supply.
Specifically, the trader would establish a “resting order” – a legitimate bid or offer – and simultaneously place larger “spoof orders” on the opposite side of the market. These spoof orders were designed to be canceled before being filled, manipulating the price to benefit the resting order. Once a partial or complete fill was received on the resting order, the spoof order was cancelled.
The CFTC found this conduct to be a violation of the Commodity Exchange Act’s prohibition against spoofing. As part of the settlement, HSBC is required to cease and desist from further violations and implement enhanced training, systems, and controls to prevent future spoofing by its personnel.
James McDonald, the CFTC’s Director of Enforcement, highlighted the agency’s commitment to combating market manipulation. He also noted HSBC’s cooperation during the investigation resulted in a reduced penalty. The CFTC acknowledged the assistance provided by the U.S. Department of Justice, the Federal Bureau of Investigations, the Chicago Mercantile Exchange, Inc., and the UK Financial Conduct Authority in bringing the case.
The case was handled by the CFTC Division of Enforcement’s Spoofing Task Force, with contributions from staff members Katie Rasor, Lara Turcik, Brandon Wozniak, Alben Weinstein, Candice Aloisi, Patryk J. Chudy, Lenel Hickson, Jr. and Manal M. Sultan.
Source: CFTC.gov
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