A pair of affiliated interdealer brokers (collectively, the "firm") settled CFTC fraud charges related to fictitious bids that had not been made and reported trades that had not occurred. The CFTC also settled charges for supervisory failures against the former CEO and head of a trading desk of one of the firms.

In a case filed in the U.S. District Court for the Southern District of New York, the CFTC alleged that the brokers (each registered as an introducing broker with the CFTC) posted fictitious bids that had not been made (referred to as "flying" prices in the Order) and reported trades to customers that had not occurred (referred to as "printing" trades in the Order). As a result, the CFTC charged the firm with violating Sections 4b(a)(2) ("Contracts designed to defraud or mislead"), 4c(a)(1)-(2) ("Prohibited transactions") and 6(c)(1) ("Prohibition on manipulative and false information") of the CEA, as well as CFTC Rule 180.1 ("Prohibition on the Employment, or Attempted Employment, of Manipulative and Deceptive Devices"). The CFTC also alleged that the firms failed to diligently implement a system of internal supervision that "expressly prohibits" flying prices or printing trades, in violation of CFTC Rule 166.3 ("Supervision"). The CFTC found that individual defendants failed to "supervise diligently" certain activities of the registrant.

To settle the charges, the firm agreed to, among other things, a $7 million civil money penalty. The individuals agreed to, among other things, a $500,000 civil money penalty and not to apply for registration with the CFTC or an exemption therefrom (or to engage in activities that would require the same) for a period of five years.

Commentary

Are there really "flying prices"? The term is nowhere to be found on the CFTC website (or after a quick Google search). It doesn't even seem all that descriptive. Does anyone have a better term? 

Perhaps a musical selection is in order.

Primary Sources

  1. CFTC Order: TFS-ICAP, LLC, TFS-ICAP Ltd., Ian Dibb and Jeremy Woolfenden
  2. CFTC Press Release: Federal Court Orders Interdealer Broker to Pay $7 Million for Deceptive Trading Practices in the FX Options Markets

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