Citigroup is to pay USD25 million to settle CFTC charges against for spoofing – bidding or offering with the intent to cancel the bid or offer before execution — in US Treasury futures markets and failed to diligently supervise the activities of its employees and agents.
Citigroup’s unlawful conduct occurred between 16 July 2011 and 31 December 2012.
Citigroup is also ordered to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing and the CFTC regulation governing diligent supervision. In addition, the order requires Citigroup to comply with undertakings, including providing annual training addressing the Act’s legal requirements with regard to spoofing to its employees who submit orders on US futures markets and their supervisors and maintaining systems and controls reasonably designed to detect spoofing activity by its traders.
CFTC director of enforcement Aitan Goelman says: “Spoofing is a significant threat to market integrity that the CFTC will continue to vigorously investigate and prosecute. Additionally, as this action shows, registrants with supervisory responsibilities must provide their employees with sufficient training and have in place adequate systems and controls to detect spoofing. Failure to do so will have significant consequences.”
Specifically, the order finds that Citigroup, by and through five of its traders (who worked on either its US Treasury or US Swaps desks), engaged in spoofing more than 2,500 times in various Chicago Mercantile Exchange (CME) US Treasury futures products during the relevant period.
According to the order, the traders’ spoofing strategy involved placing bids or offers of 1,000 lots or more with the intent to cancel those orders before execution. The spoofing orders were placed in the US Treasury futures markets after another smaller bid or offer was placed on the opposite side of the same or a correlated futures or cash market, the order finds.
The traders placed their spoofing orders to create or exacerbate an imbalance in the order book and cancelled their spoofing orders after either the smaller resting orders had been filled or the traders believed that the spoofing orders were at too great a risk of being executed, the order finds. In addition to executing the spoofing strategy individually, according to the order, on at least one occasion, some of Citigroup’s traders coordinated with each other to implement the spoofing strategy, by placing one or more spoofing orders after another trader had placed one or more smaller resting orders in the same or a correlated futures or cash market.
The order also finds several supervision failures related to Citigroup’s spoofing. First, Citigroup provided insufficient training about spoofing to traders on its US Treasury and US Swaps desk. In fact, for most of the traders through which Citigroup spoofed, the only communication they received about spoofing before or during the relevant period consisted of a single compliance alert containing the Act’s anti-spoofing language. Second, the order finds that Citigroup did not have adequate systems and controls in place to detect spoofing by traders on its US Treasury and US Swaps desks. Third, the order notes that even when alerted to a spoofing incident involving one of its traders, a supervisor and other members on the US Treasury desk failed to comply with Citigroup’s then-existing policies regarding reporting violations of the Act.
Further, the order recognises Citigroup’s cooperation during the investigation of this matter, including Citigroup’s self-reporting of additional potential spoofing orders after the CME had inquired about certain suspicious orders, as well as corrective action taken by Citigroup prior to entry of the order to improve its supervisory systems, internal controls, and training with respect to spoofing.
