Commodity Futures Trading Commission, or CFTC, has officially settled its spoofing case that the regulator has leveled against one Mirae Asset Daewoo. The South Korean company is claimed to have made immoral profits by way of spoofing within the futures market that the company traded through the Chicago Mercantile Exchange (CME).
Acquisition Amidst Spoofing
Mirae acquired the company in the midst of this event, with the former traders of Daewoo Securities Co Ltd having been embroiled with the spoofing case. Former traders within the company placed to buy or sell futures contracts on the CME on many occasions, with the express intent of canceling them before execution. This spoofing scheme has run for at least a year, starting in December 2014 and ending in April 2016, as far as the CFTC can determine. The spoofing activities focused mainly on E-mini S&P 500 contracts that the CME lists on its futures market.
Praises Of Cooperation
With the settlement of this case by the CFTC, Daewoo will be forced to pay $700 000 in fines. As is the case with many of these things, Daewoo neither confirmed nor denied these allegations. Something of note is that the CFTC is singing the praises of Mirae, since it has given cooperation after learning of the misconduct of the subsidiary. According to the CFTC, this reduced the monetary penalty and sped up the resolution of the matter.
For general knowledge, spoofing is a practice of putting up large amounts of buy or sell orders. This results in the public market interpreting a supply or demand that doesn’t exist and causing them to react accordingly. Ultimately, this results in the spoofer gaining some sort of market shift advantage they should not have. It’s easy to see why it’s illegal.
Daewoo tried to strategize the event formally. One such strategy involving Daewoo’s traders are employed in three steps. The first step is always the same: Place a large order on the buy or sell side, without intent on executing it.
By The Numbers
While canceling orders in and of itself is nothing horrible, people do it all the time, but Daewoo’s traders did it in such a way that they benefited from it. A genuine order is placed among all these spoofs, intending to execute on the opposite side of the market. Finally, the spoofs get canceled seconds after the genuine order was filled, letting the spoofer gain a profit illegitimately.