Regulators ordered Citigroup Inc. to pay $25-million for manipulating the U.S. Treasury futures market, the most-high-profile firm yet penalized for the illegal trading technique known as spoofing.
The U.S. Commodity Futures Trading Commission said Thursday that five Citigroup traders spoofed more than 2,500 times between July 2011 and December 2012 on futures markets owned by CME Group Inc. in Chicago. The regulator rebuked Citigroup for failing to adequately supervise its traders and for not having systems in place to detect spoofing, which involves entering fake orders designed to fool others into thinking prices are poised to rise or fall.
"Spoofing is a significant threat to market integrity that the CFTC will continue to vigorously investigate and prosecute," Aitan Goelman, head of enforcement at the CFTC, said in a statement. The $25-million Citigroup fine is the biggest spoofing settlement to date.
"We are pleased to have resolved this matter," Citigroup said in a statement. The New York-based bank neither admitted to nor denied the allegations.
Read more: Spoofing is a silly name for serious market rigging Regulators and exchanges have stepped up their policing of spoofing in recent years, but the people and firms they've previously gone after have been relatively small players in markets. Citigroup is the first bank hit with a major penalty.
The U.S. criminally charged Navinder Singh Sarao, a British day trader accused of contributing to the 2010 flash crash, with spoofing in 2015. In November, he pleaded guilty to spoofing and wire fraud and agreed to forfeit $12.9-million. Igor Oystacher and his firm 3Red Trading LLC last year settled spoofing charges brought by the CFTC, agreeing to pay $2.5-million. A trader named Michael Coscia was sentenced in 2016 to serve three years in prison for spoofing.
Spoofing can be done manually by traders or through computer algorithms. It involves flooding the market with orders that are later canceled when prices move in the direction the spoofer wants. While there's nothing wrong with canceling orders, the Dodd-Frank Act passed in 2010 makes it illegal to place orders with no intention of executing them.