June 26 A lawsuit brought by the U.S. derivatives regulator against a Chicago speed-trading firm and its prominent founder claiming they manipulated prices may go forward, a New York federal judge ruled on Thursday.
U.S. District Judge Analisa Torres said she found "unpersuasive" a request by DRW Investments and its founder, Donald Wilson, to dismiss the case brought in November by the Commodity Futures Trading Commission.
The CFTC had accused Wilson and DRW of manipulating the price of an interest rate futures contract in 2011.
It said Wilson bought a $350 million position in a three-month interest rate swap futures contract listed on the Nasdaq, hoping he could exploit the pricing methodology of that contract in his favor.
His firm put bids in the market it knew were never going to be accepted to influence the daily fixing of a rate that determined the value of a large position they held, the CFTC said, a practice known as "banging the close."
In seeking to dismiss the case, Wilson and DRW said that despite setting forth a "dense thicket of technical jargon, trading charts and graphs," the CFTC failed to show they had intended to create an artificial price.
But in a 37-page decision, Torres said, "At this stage in litigation, this court cannot conclude as a matter of law that (DRW) bids placed and withdrawn at above-market rates reflect the legitimate forces of supply and demand."
She also rejected the defendants' arguments that the case did not belong in New York to begin with, pointing to the CFTC's allegations that the defendants' bids had been placed and cleared there.
Lawyers for CFTC and Wilson and DRW did not immediately respond to requests for comment.
DRW invests its own money in markets like a hedge fund, but without taking on outside clients. DRW has said it was not using the high-frequency trading techniques it applies elsewhere in its business to the contracts in question.
Wilson is a board member of the Futures Industry Association and the head of its Principal Trading Group, which represents companies trading with their own money, including many of the best-known speed traders. (Reporting By Casey Sullivan; Editing by Cynthia Osterman)