CHICAGO CME Group Inc plans to
strengthen efforts to deter wrongdoing in markets by raising the
maximum possible fine for rule breakers, the company said on
Thursday, further raising the stakes for rogue traders following
the first U.S. criminal convictions for the manipulative trading
practice known as spoofing.
The owner of the Chicago Board of Trade, New York Mercantile
Exchange and other markets is preparing to increase the top
monetary penalty to $5 million per offense from $1 million
starting on Dec. 14, according to a notice sent to clients.
The CME is making that change and others to address the
"increasing complexity of disciplinary matters," after reviewing
its procedures, the notice said.
The company, a self-regulatory organization, fines firms and
individuals and suspends them from its markets for violations
ranging from failing to supervise employees to wash trading, in
which traders sell contracts to themselves to make a market look
more active than it is.
The U.S. Commodity Futures Trading Commission and National
Futures Association also oversee market participants.
Lawyers and traders said the rise of computerized and
algorithmic trading has complicated regulatory work due to the
large size and speed of transactions. They have focused recently
on spoofing, after a provision against the trading practice was
implemented as part of the 2010 Dodd-Frank financial reform,
Spoofing usually involves using algorithms to place orders
with the intent to cancel them before execution. By creating an
illusion of demand, spoofers can influence prices.
"Previously, traders were on the floor, trading physical
products," said Braden Perry, who was formerly a senior trial
attorney for the CFTC. "It's a whole new world now."
Raising the maximum fine helps the CME address "the
realities of the world that sometimes a $1 million penalty might
not be enough to deter a certain kind of behavior," said Perry,
a partner at the law firm Kennyhertz Perry in Kansas City,
Last month, a British trader, Navinder Sarao, became the
second person convicted of spoofing U.S. futures markets. The
first, Michael Coscia, is appealing his conviction.
The CME notice said it wanted to make its rules "more
applicable to the types of disciplinary cases going through the
A spokeswoman did not respond to a question about what types
of cases the notice referred to.
Bill Harts, chief executive of Modern Markets Initiative,
which represents high-speed traders, said algorithmic trading
did not make disciplinary matters more complex.
"When trades are executed by computer, there is a robust,
immutable audit trail that is simple for regulators to look at,
analyze, and act on," he said.