By Douwe Miedema
WASHINGTON, Nov 6 (Reuters) - A Chicago speed-trading firm and its prominent founder were charged with manipulating prices by the U.S. derivatives regulator on Wednesday.
The Commodity Futures Trading Commission filed a civil enforcement action against Donald R. Wilson and DRW Investments - named after him - for manipulating the price of an interest rate futures contract in 2011, the agency said.
“The Complaint alleges that as a result of the manipulative scheme, the defendants profited by at least $20 million,” the CFTC said, adding it would seek financial penalties.
DRW and Wilson, who also heads a lobby group for some of the top high-frequency trading firms, sued the U.S. swaps regulator in September to prevent it from bringing what they called an “unfounded” case.
DRW said in a statement it had acted “properly and lawfully” and said the CFTC was setting new policy through its enforcement action, robbing DRW of its constitutional rights to due process.
The CFTC 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”.
The CFTC said this had caused artificial market prices. In their September filing, DRW and Wilson said the trading strategy in interest rate futures was clean.
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.