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OSC reaches deal in alleged ‘spoofing’ case

The OSC alleged traders at Oasis engaged in “spoofing,” which is a trading practice in which traders post a number of fake requests to buy or sell shares that they do not intend to finalize or execute.

Peter Power/The Globe and Mail

Staff of the Ontario Securities Commission have reached a settlement agreement with the owner of day-trading company in the first case of alleged "spoofing" ever launched by the regulator.

The OSC alleges day traders at Hamilton-based Oasis World Trading Inc. engaged in at least 460 instances of manipulative trading in shares of companies listed on Canadian stock markets between November, 2013, and December, 2014.

In a Statement of Allegations released Friday, the regulator said Oasis founder Zhen (Steven) Pang did not know some of his day traders – all located in China – were engaged in manipulative practices.

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But the OSC alleged he ought to have known and failed to adequately monitor trading activity at the company, "thereby indirectly engaging or participating" in conduct that resulted in a misleading appearance of trading activity or an artificial price for a security.

"Pang should have taken greater steps to monitor for and ensure that manipulative trading was not taking place," the OSC said in its statement of allegations.

Mr. Pang has negotiated a settlement with OSC staff, which will be considered by a hearing panel on Monday. Terms of the settlement will not be disclosed until the deal is approved.

The OSC alleged traders at Oasis engaged in "spoofing," which is a trading practice in which traders post a number of fake requests to buy or sell shares that they do not intend to finalize or execute. The orders give a false appearance of market interest in thinly traded stocks, which pushes the share price up or down in the order book. The trader then executes another real transaction to take advantage of the price change, and cancels all the unfilled fake orders that helped shift the share price.

The regulator said improper trading at Oasis was "intended to deceive and did deceive certain counter-parties" into buying or selling stock at artificial prices.

"This process was usually repeated multiple times on the same day," the OSC alleged.

While the OSC has launched cases in the past involving marketing manipulation, they have never previously alleged spoofing has occurred.

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The practice drew attention in the U.S. in January when the U.S. Department of Justice launched its first federal fraud prosecution in a spoofing case, charging a Canadian man with operating an international spoofing scheme "on a massive scale" from a base in Florida. Aleksandr Milrud pleaded guilty in U.S. court in September and is awaiting sentencing.

Mr. Pang, who founded Oasis in 2012, employed 200 day traders at 40 branch offices in China. He worked as a proprietary day trader for a U.S. firm for five years and was also an officer manager responsible for supervising other traders, so the OSC said he was familiar with market manipulation laws.

The regulator said most of the cases of spoofing it uncovered – 357 of 450 – occurred in April, 2014. The trades represented 0.14 per cent of Oasis' total number of trades and 0.04 per cent of its total trading volume that month, however.

The OSC said that while the trades did not represent much of the firm's total volume, they represented "a very high proportion" of trading in the particular shares that were targeted.

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