Just last week, I posted an article regarding the Department of Labor’s decision, despite ongoing litigation, to grant exemptions to several major banks: to JPMorgan Chase & Co., Deutsche Investment Management Americas Inc. (DIMA) and Certain Current and Future Asset Management Affiliates of Deutsche Bank AG, Citigroup Inc., Barclays Capital Inc., UBS Assets Management (Americas) Inc.; UBS Realty Investors LLC; UBS Hedge Fund Solutions LLC; UBS O'Connor LLC; and Certain Future Affiliates in UBS's Asset Management and Wealth Management Americas Divisions.
Today, the U.S. Commodity Futures Trading Commission (CFTC) announced enforcement action against three banks (Deutsche Bank, UBS, and HSBC), along with six individuals in association with “spoofing” the precious metals futures contracts.
According to the announcement, Deutsche Bank will be required to pay $30 million in fines, UBS $15 million, and HSBC $1.6 million.
In short, spoofing is an illegal technique used to drive pricing up or down by placing bids to buy or sell futures contracts with the intent of canceling the orders prior to fulfillment. The bidding creates the illusion of pricing demand, which then influences subsequent contract bid pricing.
Spoofing is also used in stock and bond trading to influence markets. It’s just one of several market manipulating tactics that need to be corrected, as I previously addressed in one of my Five Simple Steps segments.
It’s important to note that the three banks settled civilly rather than being charged criminally. Otherwise, the exemptions given by the DOL would be rescinded. While three of the individuals face federal charges, the remaining three only face civil charges.