By Douwe Miedema
Sept 17 A Chicago speed-trading firm sued the
U.S. swaps regulator on Tuesday, saying it acted to prevent the
agency from bringing an "unfounded" case against it for
manipulating futures contracts.
DRW Investments and its founder Donald R. Wilson, for whom
the firm is named, filed the lawsuit against the Commodity
Futures Trading Commission in the U.S. District Court for the
Northern District of Illinois.
"Any claim the CFTC may bring against DRW on this matter
would be completely unfounded," the company said in a press
DRW has been the subject of a CFTC inquiry for nearly two
years and found out about the probe when the CFTC requested
documents in August 2011, Craig Silberberg, a DRW employee, said
in a declaration filed in support of the case.
In April 2013, the CFTC's Division of Enforcement informed
DRW that it intended to recommend that the Commission file an
enforcement action, he added.
"DRW therefore understands that the filing of an enforcement
action by the CFTC is imminent, unless the Enforcement
Division's recommendation is rejected by the Commission," said
Silberberg, who oversees some of DRW's trading operations.
The CFTC, which has not yet brought a case, had no immediate
comment on the lawsuit.
Calling itself a "principal trading firm," DRW invests its
own money in markets like a hedge fund, but without taking on
Wilson is a board member of the Futures Industry Association
and the head of the FIA's Principal Trading Group, which
represents high-frequency traders.
DRW said the CFTC's case was in connection with trading in
the IDEX USD3 Month interest rate swap futures contract, an
illiquid financial instrument.
These instruments are not traded through the high-frequency
trading techniques that DRW uses elsewhere.
The CFTC's case centers on price differences between the
swap futures contract, which was listed on the Nasdaq OMX
and comparable unlisted swaps during the period from
August 2010 to August 2011, according to the complaint.
DRW could affect the price of the listed contract because it
was so illiquid, but the fact that the listed contract diverged
from the unlisted one did not mean the price was "artificial" as
alleged by the CFTC, it said.
DRW has argued publicly that the two contracts were
economically different and there was no regulation that said the
price of a listed contract should always match its unlisted
counterpart, DRW said.
"Accordingly, the CFTC's enforcement action ... would
violate DRW's constitutional due process right to receive fair
notice ... as well as its right to be free from arbitrary and
unreasonable government actions," the complaint added.