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CFTC seeks civil monetary penalties, trading and registration bans, and permanent injunctions
The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil Complaint in the U.S. District Court for the Northern District of Illinois, charging Igor B. Oystacher and his proprietary trading company, 3 Red Trading LLC (3 Red), both of Chicago, Illinois, with spoofing and employment of a manipulative and deceptive device while trading futures on four different futures exchanges.
According to the CFTC Complaint, on at least 51 trading days between December 2011 and January 2014, Oystacher and 3 Red intentionally and repeatedly engaged in a manipulative and deceptive spoofing scheme while trading in at least five futures products on at least four exchanges: the E-Mini S&P 500 (S&P 500) futures contracts on the Chicago Mercantile Exchange (CME); crude oil and natural gas futures contracts on the New York Mercantile Exchange (NYMEX); copper futures contracts on the Commodity Exchange Inc. (COMEX); and the volatility index (VIX) futures contract on CBOE Futures Exchange (CFE). The Complaint explains that their scheme created the appearance of false market depth that Oystacher and 3 Red exploited to benefit their own interests, while harming other market participants.
Aitan Goelman, the CFTC’s Director of Enforcement, commented: “Spoofing seriously threatens the integrity and stability of futures markets because it discourages legitimate market participants from trading. The CFTC is committed to prosecuting this conduct and is actively cooperating with regulators around the world in this endeavor.”
The Complaint alleges that Oystacher and 3 Red engaged in this scheme by manually placing large passive orders on one side of the market at or near the best bid or offer price, which they intended to cancel before execution – and thus are regarded as “spoof orders.” These orders were placed through accounts owned by 3 Red, to create the false impression of growing market interest to trade in a certain direction (to either buy or sell) and to induce other market participants into placing orders on the same side of the market and at similar price levels as the spoof orders. According to the Complaint, Oystacher and 3 Red would then cancel or attempt to cancel all of the spoof orders before they were executed and virtually simultaneously “flip” their position from buy to sell (or vice versa) by placing at least one aggressive order on the other side of the market at the same or better price to trade with market participants that had been induced to enter the market by the spoof orders that were just canceled.
This strategy allowed Oystacher and 3 Red to buy or sell futures contracts in quantities and at price levels that would not have otherwise been available to them in the market, absent the spoofing conduct, the Complaint alleges.
For more information see the official CFTC release here.