SUMMIT, NJ – The Commodity Futures Trading Commission (CFTC) today announced a settled enforcement action against TeraExchange LLC (Tera), a provisionally registered Swap Execution Facility (SEF), for failing to prevent and properly disclose wash trading and pre-arranged trading on its platform. The order, issued simultaneously with the charges, requires Tera to cease and desist from future violations of trade practice rules.
According to the CFTC, on October 8, 2014, the only two authorized market participants on Tera’s SEF executed offsetting transactions in a non-deliverable forward contract based on the U.S. Dollar and Bitcoin, known as the Bitcoin Swap. Tera facilitated these trades, communicating to one participant that the transactions were a “round-trip trade” intended solely to test the platform’s functionality without any profit or loss implications.
Despite the pre-arranged nature of the transactions, Tera subsequently issued a press release and made statements at a CFTC Global Markets Advisory Committee (GMAC) meeting that presented the trades as evidence of genuine market interest in the Bitcoin Swap. The CFTC found that Tera failed to disclose the trades were, in fact, wash sales designed to test its systems.
As a registered SEF, Tera was obligated to enforce rules prohibiting wash trading and pre-arranged trading, as outlined in its rulebook and mandated by the Commodity Exchange Act (CEA) and CFTC Regulations. The CFTC distinguished this case from legitimate pre-operational testing, noting that Tera did not clearly communicate to the public that the transactions did not reflect actual market liquidity.
The CFTC has not announced any monetary penalties against TeraExchange LLC. The investigation was led by CFTC staff members Andrew Ridenour, Kim Bruno, Daniel Jordan, and Rick Glaser, with assistance from the Division of Market Oversight.
Source: CFTC.gov
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