Allston Said to Face CFTC Probe Into Alleged ManipulationMatthew Leising and Silla Brush
High-frequency trading firm Allston Trading LLC is under investigation by the U.S. Commodity Futures Trading Commission for alleged market manipulation, according to a person familiar with the matter.
The regulator has subpoenaed CME Group Inc. for information on Chicago-based Allston, said the person, who asked not to be named because the matter is private. Through an arbitration process at exchange operator CME Group, Allston was accused last year by a rival, HTG Capital Partners LLC, of misleading competitors through an illegal practice known as spoofing.
“Allston has conducted itself with the highest standards of excellence and integrity,” Dave Lundy, a spokesman, said in an e-mailed statement. “We look forward to putting this matter to rest.” Anita Liskey, a spokeswoman for CME Group, and the CFTC’s Steve Adamske declined to comment.
Spoofing has become a growing concern for regulators after the 2010 Dodd-Frank Act made such trading -- which involves submitting orders with no intention of filling them, with the goal of swaying prices in a direction favorable to your strategy -- illegal.
In the arbitration case, CME Group told HTG that Allston was its counterparty in some Treasuries futures trades that HTG said were conducted unfairly, people familiar with the matter said last year.
“It is unfortunate that HTG continues to drag our name and our industry through the mud simply because of its failure to remain competitive,” Allston’s Lundy said in the statement.
Drew Mauck, an HTG Capital spokesman, declined to comment on Lundy’s assertions. HTG Capital is run by Chief Executive Officer Chris Hehmeyer, who is also the chairman of the National Futures Association, the industry’s self-regulatory organization.
Spoofers try to make money by feigning interest in buying or selling at a certain price, creating the illusion of demand in an attempt to get other traders to move the market in a way they can profit from. The spoofer cancels the original trade before it’s executed, and buys or sells at the new price. It’s sometimes called “pull and hit” for this reason.
Allston was co-founded more than a decade ago by futures traders Bob Jordan, Elrick Williams and John Harada. Raj Mahajan, its former chief executive officer, was hired in January by Goldman Sachs Group Inc. as a partner to oversee its dark pool and algorithmic-trading businesses. Carlton Jones, chairman and president of Allston, took over as CEO.
Allston trades futures, currencies, commodities and fixed-income assets, according to records maintained by the Financial Industry Regulatory Authority. It recently stopped trading stocks.
Last year, Allston hired Jill Sommers, a former CFTC commissioner, to serve on its board of managers.