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Citigroup punished for treasury market spoofing by five traders

Friday, January 20, 2017 - 13:28

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Five Citigroup Inc traders manipulated the US Treasury futures market more than 2,500 times, according to regulators, who imposed a fine of US$25 million on the bank, the highest profile firm to be penalised for the illegal trading strategy known as spoofing.

[NEW YORK] Five Citigroup Inc traders manipulated the US Treasury futures market more than 2,500 times, according to regulators, who imposed a fine of US$25 million on the bank, the highest profile firm to be penalised for the illegal trading strategy known as spoofing.

The traders, who weren't named by the US Commodity Futures Trading Commission, were Stephen Gola, Jonathan Brims, Shlomi Salant, Jeremy Lao and Daniel Liao, according to a person briefed on the investigation who asked for anonymity to discuss a private matter. The abuses allegedly occurred between July 2011 and December 2012.

The regulator rebuked Citigroup for failing to adequately supervise its traders and for not having systems in place to detect spoofing, which involves entering fake orders designed to fool others into thinking prices are poised to rise or fall. The trading took place on markets owned by CME Group Inc. in Chicago.

"Spoofing is a significant threat to market integrity that the CFTC will continue to vigorously investigate and prosecute," Aitan Goelman, head of enforcement at the CFTC, said in a statement announcing the settlement.

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The US$25 million fine is the biggest spoofing settlement to date. "We are pleased to have resolved this matter," Citigroup said in a statement. The New York-based bank neither admitted to nor denied the allegations. Salant declined to comment. Gola, Brims, Lao and Liao didn't respond to messages seeking comment.

Regulators and exchanges have stepped up their policing of spoofing in recent years, but the people and firms they've previously gone after have been relatively small players in markets. Citigroup is the first bank hit with a major penalty.

In 2015, the US criminally charged Navinder Singh Sarao, a British day trader accused of contributing to the 2010 flash crash, with spoofing. In November, he pleaded guilty to spoofing and wire fraud and agreed to forfeit US$12.9 million. Igor Oystacher and his firm 3Red Trading LLC last year settled spoofing charges brought by the CFTC, agreeing to pay US$2.5 million. A trader named Michael Coscia was sentenced in 2016 to serve three years in prison for spoofing.

Spoofing can be done manually by traders or through computer algorithms. It involves flooding the market with orders that are later cancelled when prices move in the direction the spoofer wants. While there's nothing wrong with cancelling orders, the Dodd-Frank Act passed in 2010 makes it illegal to place orders with no intention of executing them.

Brims last year agreed to pay US$50,000 to CME Group and serve a 10-day suspension from trading, according to a disciplinary notice from the exchange. In 2014, Salant agreed to pay US$30,000 to CME to settle spoofing allegations and serve a 10-day trading ban. Gola agreed to pay US$65,000 and serve a 10-day ban in 2015 year, according to a CME Group disciplinary notice.

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