November 24, 2014 / 11:51 PM / 5 years ago

CFTC tells CME Group to work more on 'spoofing' detection

CHICAGO, Nov 24 (Reuters) - CME Group Inc, the world’s largest futures market operator, should continue to develop strategies to detect an illegal manipulative trading practice known as “spoofing,” the U.S. Commodity Futures Trading Commission said on Monday.

Spoofing involves rapidly placing orders to create the illusion of market demand. Unsuspecting traders are then tricked into buying or selling at artificial prices, only to later find that the orders were canceled.

The practice gained notoriety last month after high-frequency trader Michael Coscia was charged with manipulating commodity futures prices in the first U.S. federal criminal prosecution of spoofing.

The CFTC recommended CME further address its surveillance of spoofing after the agency’s Division of Market Oversight reviewed rule enforcement at the New York Mercantile Exchange and Commodity Exchange Inc from July 1, 2012 to June 30, 2013. The exchanges are owned by Chicago-based CME.

CME said it was reviewing the CFTC’s findings.

“A number of the items noted in its reports have already been addressed and remediated,” a spokeswoman said.

During the review period, the exchanges’ “messaging” research program, which CME initiated in January 2013 to identify spoofing and other problematic messaging behaviors, did not result in the initiation of any spoofing cases, the CFTC said. Of 10 cases opened during the period involving potential spoofing, eight were initiated from complaints.

The “messaging” research program began conducting regular reviews in April 2013, and after the target period it initiated two spoofing cases based on activity during the target period, the CFTC said. Allegations of disruptive trading practices were the most common type of complaint during the review period, accounting for 25 complaints, or 31 percent, according to the agency. (Reporting by Tom Polansek; Editing by Grant McCool)

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