The CFTC has filed an enforcement action against a trader engaged in spoofing of the E-mini S&P near month futures contract over many years, including on the day of the 2010 Flash Crash. The individual’s market manipulation was reportedly brought to the attention of the U.S. derivatives regulator by a whistleblower.
The Commodity Futures Trading Commission complaint accuses the trader of market manipulation by layering large orders in the futures market behind the best bid or offer with the intent to cause the price to move. The orders were typically cancelled so that that they were not filled. The defendants used the volatility caused by the imbalances they created in the futures order book to trade profitably. A trader that places an order without having the intent to fill the order is engaged in spoofing.
May 6, 2010 is commonly known as Flash Crash Day. A large sell order in the E-mini S&P futures caused a precipitous and widespread market decline. The Dow plunged nearly 1,000 points (a loss of almost 10% of its market value) within a few minutes. The market almost immediately regained its massive losses, with the Dow closing the day down only 348 points.
A joint report of the SEC and CFTC issued on September 30, 2010 identified a large sell order executed by a computer program in the afternoon. The Government’s complaint now alleges that the defendants were a heavy trader on the morning of the Flash Crash and the sell side pressure they placed contributed to an imbalance in the order book that resulted in the market plunge when the other trader’s large sell order was placed.
According to a press release by the anonymous whistleblower’s attorneys, the whistleblower spent hundreds of hours analyzing market data and other information. If the CFTC recovers more than $1 million as a result of the enforcement action, and the whistleblower is otherwise eligible for an award under the terms of the CFTC whistleblower program, then the regulator may award the individual between 10 and 30 percent of the monetary sanction as authorized by the Dodd-Frank Act. The Commission paid out its first reward based on a tip in 2014.
British authorities arrested the trader following the CFTC’s filing of the enforcement action. The U.S. has requested extradition for trial in the United States and a hearing on the issue will probably happen in August.
For questions about this and other aspects of the CFTC whistleblower program, as well as assistance reporting violations of the Commodity Exchange Act to the U.S Government, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.