Alleged Spoofer Oystacher Said to Face Fresh CME Investigation

  • Recent trades eyed as CFTC alleges spoofing continued in 2015
  • Probe follows five earlier actions by CME and other exchanges

Igor Oystacher, the Chicago trader accused by regulators and exchanges of using fake orders to game markets as far back as 2011, is facing another investigation into his trading by the world’s largest futures market.

CME Group Inc., operator of Chicago Mercantile Exchange and New York Mercantile Exchange, has begun a new formal investigation into Oystacher’s recent trading, according to a person familiar with the matter. That comes less than a year after the CME settled an enforcement case against Oystacher that included a $150,000 fine and a 30-day trading ban, in which the Russian-born trader neither admitted nor denied the findings.

Chris Grams, a CME Group spokesman, declined to comment. 

The probe would be the sixth by a futures exchange in the past year into Oystacher’s trading. That underlines exchanges’ limited ability to stop trading they deem to break their rules by traders they have already accused of trying to sway prices. Oystacher, through his trading firm, has denied those allegations. 

Broad Crackdown

The U.S. government has stepped in with its own broad crackdown against so-called spoofing. Oystacher is under investigation by the U.S. Justice Department, which is asking whether he attempted to manipulate prices by placing orders he didn’t intend to fill, people familiar with the matter said in September. He was sued last month by the Commodity Futures Trading Commission, the U.S. derivatives regulator, for allegedly manipulating futures markets.

Oystacher has continued to engage in “manipulative or deceptive trading strategies that spoofed” markets until at least May 2015, the CFTC alleged earlier this week.

“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 in a court filing Monday, requesting that he be barred from trading while the commission’s suit proceeds.

That characterization was disputed by an executive at 3Red Trading LLC, the Chicago trading firm Oystacher co-founded in 2010. “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,” Greg O’Connor, 3Red’s compliance officer, said in an e-mailed statement Tuesday.

Tom Becker, a spokesman for Oystacher, declined to comment on the new CME Group investigation. “3Red will not comment on rumors,” he said in an e-mailed statement.

Enhanced Powers

U.S. prosecutors in 2010 got enhanced powers to address spoofing, which introduces fake demand into markets in an effort to fool other traders into buying or selling. The Justice Department successfully applied the new law for the first time earlier this month, gaining the jury conviction of Michael Coscia for spoofing. He could face up to 25 years in prison on the most serious count. 

Chicago federal prosecutors are also seeking the extradition of U.K. trader Navinder Singh Sarao. His spoofing contributed to the May 2010 “flash crash” that temporarily wiped out almost $1 trillion in value of U.S. equities, the U.S. alleges. Sarao, who is in London fighting the extradition bid, has denied wrongdoing.

In bolstering its own case this week to halt Oystacher’s trading, the CFTC introduced a Citadel LLC executive’s allegation that the Chicago hedge fund had been the victim of spoofing into this year.

Spoofing activity in S&P 500 futures contracts on CME Group, one of the exchange’s most-used contracts, has cost Citadel millions of dollars and hurt the health of the market because the firm reduced its activity in response to the manipulation, according to an affidavit of Richard May, a lead quantitative researcher at Citadel, which was filed as part of the CFTC’s suit against Oystacher. 

Citadel compiled evidence of what it called spoofing from 2013 to 2015 and presented it to the CFTC and CME, May said, adding the fund sent the two bodies its latest complaint of spoofing in S&P 500 futures in July.

‘Trading Losses’

“The spoofing activity in 2015 was harmful to Citadel’s trading strategies because the build-up of orders created the impression of market demand on which our algorithms made trading decisions,” May said in the affidavit. “This resulted in trading losses and opportunity costs approximating six figures per day on approximately 50 days during that period.”

May, in the affidavit, didn’t identify the source of the spoofing as all futures trading is anonymous.

Oystacher is accused of spoofing on 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 latest CME investigation would be the group’s second into Oystacher, who has also come under scrutiny of other exchanges. 

Intercontinental Exchange Inc. accused him of placing fake orders in an effort to sway futures on the Russell 2000 Index, fining him $125,000 and telling him to stop the practice. Oystacher settled without admitting or denying wrongdoing.

Eurex, one of Europe’s largest futures markets, in May banned a trader it referred to as “Mr. A.” for 30 days. Mr. A is Oystacher, a person familiar with the matter said last month. Eurex took the step after fining the trader twice last year for spoofing -- 90,000 euros ($102,000) in June and 250,000 euros, the maximum, in July.

“Mr. A. has persistently and notoriously continued his twice-sanctioned trading strategy, albeit in an altered form,” the Eurex sanctions committee wrote in its May 20 decision. Mr. A has appealed the 2014 rulings in Frankfurt administrative court, Eurex said. “A fair-minded trader could have been expected to suspend the censured trading strategy at least until a final legal verdict had been reached.”

Becker declined to comment on the Eurex enforcement action.

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