CFTC Seeks Bar on Alleged Spoofer Oystacher in 3Red Caseby
Regulator claims he cheated on multiple commodity exchanges
Agency ramps up spoofing lawsuit after U.S. wins first trial
The U.S. Commodity Futures Trading Commission asked a judge to bar Chicago-based trader Igor Oystacher from the markets for the duration of a spoofing lawsuit in which he and his firm, 3Red Trading LLC, are accused of cheating on some of the world’s biggest futures exchanges.
The regulator sued 3Red and Oystacher last month in Chicago federal court for allegedly creating “the appearance of false market depth” to benefit their own interests “while harming other market participants.”
The spoofing occurred over 51 trading days from December 2011 to January 2014 on the Chicago Mercantile Exchange, the New York Mercantile Exchange, the Commodity Exchange and the Chicago Board Options Exchange, the CFTC alleged last month.
The regulator on Monday asked for a court order prohibiting Oystacher from trading “certain commodity futures during the pendency of this action.” The CFTC also sought to block Oystacher and 3Red from engaging in spoofing or any attempts at market manipulation.
Oystacher continued to engage in “manipulative or deceptive trading strategies that spoofed” markets until at least May, the commission’s lawyers said in Monday’s filing.
“The fact that Oystacher has persisted in this illegal conduct despite multiple regulatory inquiries, sanctions and warnings demonstrates a likelihood that he will persist in the illegal trading activity in the absence of a preliminary injunction,” the CFTC said.
The lawsuit contains one of multiple allegations that traders engaged in spoofing, a form of manipulation that involves moving prices by placing orders without intending to execute them. Trader Michael Coscia on Nov. 3 was convicted of spoofing and commodities fraud by a Chicago jury in the first criminal trial after the 2010 Dodd-Frank Act made such activity illegal.
The CFTC said in court papers that Oystacher “engaged in a pattern of manipulative and deceptive spoofing in multiple futures on at least five exchanges.”
The trader placed large orders “on one side of the futures at near the best bid or offer price,” the regulator’s lawyers said in the court filing. This would “induce other market participants into placing orders on the same side of the market.”
Oystacher would then “cancel the spoof orders before they were executed and virtually simultaneously ‘flip’ his position from buy to sell (or vice versa),” according to the agency.
3Red Trading has disputed the CFTC’s allegations.
“After four years of real-time investigation by the CFTC staff, they have issued a faulty analysis of alleged improper trading in a minuscule number of Mr. Oystacher’s orders,” Compliance Officer Greg O’Connor said Tuesday in an e-mailed statement.
“Incredibly they then try to buttress their defective claims with nebulous complaints from a small subset of our firm’s competitors,” he said.
Oystacher settled accusations over the past year with the two largest U.S.
futures markets, CME Group Inc. and Intercontinental Exchange Inc., without
confirming or denying wrongdoing. He paid $275,000 to settle those matters.
CME said in its findings that from December 2010 to July 2011, “Oystacher
entered bids and offers in crude oil futures contracts in such a manner so as
not to have the requisite intent to trade at the time of order entry. These
bids and offers were subsequently cancelled by Oystacher.”
CME, which investigated trading in futures based on crude oil and metals, barred Oystacher from trading for a month. ICE, which accused him of placing fake orders in an attempt to sway futures on the Russell 2000 stock index, told him to stop the practice.
The trading supervisory board for Eurex Germany sanctioned Oystacher on three separate occasions -- June 24, 2014, Dec. 15, 2014 and May 20, 2015 -- following disciplinary proceedings, the CFTC said Monday in court papers. All three actions accused Oystacher of “misleadingly influencing supply and demand” through spoofing, the agency said.
Oystacher wasn’t able to “properly defend himself” against the CME accusations, O’Connor, the 3Red officer, said in a letter to the sanctions committee of Eurex Deutschland in May. 3Red cleared all transactions through MF Global, which filed for bankruptcy in 2011, leaving records “difficult, or at times impossible to retrieve,” O’Connor wrote.
CME sent guidance on spoofing regulations to traders in September 2014, O’Connor wrote. As a result, “Oystacher has made significant changes to his trading style that better conforms with expectations of the exchange,” he said.
O’Connor also blamed a former 3Red employee, who’s suing after being fired, and media reports for creating “a biased view of the trading activity, which we continue to strongly defend as we know we have the facts to prove that Mr. Oystacher is trading these markets, not attempting to mislead them.”
A hearing on the CFTC’s injunction request is set for Nov. 16.
The case is U.S. Commodity Futures Trading Commission v. Oystacher, 15-cv-09196, U.S. District Court, Northern District of Illinois (Chicago).