CFTC cracks down on wash trades
In September, the Commodity Futures Trading Commission took two separate enforcement actions for violations of its wash trade rules.
On Sept. 24, the CFTC announced an enforcement action against Cargill de México for engaging in wash trades in agricultural futures trading on the Chicago Board of Trade and the Kansas City Board of Trade. Cargill de México agreed to settle the charges and pay a $500,000 ﬁne without admitting or denying the CFTC’s ﬁndings. The company also agreed to improve its compliance with CFTC rules and begin using the self-match prevention technology provided by its clearing ﬁrm.
According to the CFTC, Cargill de México engaged in the wash trades in order to move hedging positions among accounts. When the source of the physical commodity changed to a different account, Cargill de México would transfer the futures position to the account linked to the new source. In most instances the transfer was done through its clearing ﬁrms, but in some instances traders at Cargill de México moved the position by entering into equal and opposite transactions. After being contacted by CME Group about the prearranged trading, Cargill de México changed its policies and procedures and “cooperated fully” with the investigation, the CFTC said.
Also on Sept. 24, the CFTC announced an enforcement action against TeraExchange, a swap execution facility, for failing to enforce the prohibition on wash trading in its rulebook. TeraExchange agreed to settle the investigation without admitting or denying the findings.
According to the CFTC, TeraExchange arranged for two unrelated traders to execute a “round-trip trade” in its bitcoin swap contract in order to test their systems. The company subsequently issued a press release announcing the trade in order to “create the impression of actual trading interest” in the contract, the CFTC said.
In this case, however, the CFTC did not order the company to pay a ﬁne. That prompted CFTC Commissioner Sharon Bowen to issue a dissenting statement saying that the company deserves a penalty for having violated the wash trade rule.