Photographer: Erik T Witsoe/Getty Images/Flickr RF

Oystacher Says Speed Chess, Not Spoofing, Is Behind His Trades

  • Speed chess player has very fast reflexes, court filing says
  • U.S. seeks to bar Oystacher from market while case proceeds

Igor Oystacher, the co-founder of 3Red Trading LLC accused of manipulating markets by rapidly placing trades he never intended to execute, has exceptional reasoning skills -- in the 99th percentile -- that gave him the capacity to quickly follow through on orders, his lawyers said.

Oystacher was sued in October by the U.S. Commodity Futures Trading Commission, which accused him of spoofing, saying that he canceled orders within a second of entering them -- a sign he could be illegally entering orders to create a false impression of demand, and then canceling them. Outlining his defense for the first time in an April 1 court filing, lawyers said that Oystacher, a competitive speed chess player, has exceptional reaction-time skills and a customized computer mouse that make him faster than most humans at executing trades.

“One second is an eternity in modern markets,” lawyers said in the filing. Oystacher said that because he trades manually and without using algorithms his methods are incorrectly viewed as disruptive.

“Mr. Oystacher’s orders are big. They are frequent. And, by human standards, he places his orders very quickly,” his lawyers wrote. “Because of this, the CFTC and the algorithmic trading firms with which it is aligned have decided that Mr. Oystacher’s trading is anomalous.”

Still Spoofing

The CFTC seeks to ban Oystacher from trading as its case proceeds because it alleged earlier this year that he is still spoofing. Oystacher is seeking to reject that preliminary injunction, and a hearing on the issue is scheduled to begin April 25. Any temporary trading ban would have reputation consequences for Oystacher, and 3Red, his lawyers said.

Spoofing in U.S. futures markets became illegal in 2010, when the Dodd-Frank Act took effect. The CFTC invoked that rule when it accused Oystacher and 3Red in its 2015 lawsuit of engaging in the practice. Spoofers place orders they don’t intend to fill for the sole purpose of moving prices in a direction favorable to their strategy, then cancel them before they are filled. While there’s nothing wrong with canceling orders, it’s illegal to put orders into a markets with no intention of following through on them.

“Mr. Oystacher has testified that he is willing to execute every order that he places, at the moment that he submits it,” according to the April 1 filing. “The CFTC has neither elicited nor disclosed any direct evidence to the contrary.”

The exchanges where Oystacher trades have previously fined him for spoofing on their markets. He’s been fined five times for a total of $660,000 by CME Group Inc., Intercontinental Exchange Inc. and Eurex AG. In each case, Oystacher neither admitted nor denied wrongdoing. The Russian-born trader is also facing another spoofing investigation by CME, a person familiar with the matter said in November.

Russian Speed Chess

Oystacher was a competitive speed chess player in Russia and still plays today, according to court papers. Such games are limited to three to five minutes, and “to excel, a speed chess player must therefore be able to process relevant information, forecast his opponents‘ actions, and react appropriately, all on an expedited timeline.”

His defense also lists how quick Oystacher can think on his feet. Oystacher tested in the 99th percentile for “nonverbal reasoning” and in the 91st percentile for reaction speeds for “highly familiar tasks,” according to the filing. “Reaction-time testing shows that Mr. Oystacher is capable of reacting to information within approximately 300 milliseconds—an interval that is very fast by human standards, but comparatively slow in relation to algorithmic traders.”

Oystacher has modified his computer equipment in several ways to help his trading, according to the filing. His mouse was modified, giving him the ability to place large orders with one click of the left button and smaller ones with the right button. “Because there are only two buttons on the mouse, and each corresponds to a set order size, it may take several clicks for Mr. Oystacher to achieve his desired total order size,” the filing said.

Oystacher’s lawyers also say the spoofing provision in Dodd-Frank is too vague and hasn’t been effectively thought out. “The text of the spoofing provision simply did not provide Mr. Oystacher any reasonable touchstone for identifying -- or avoiding -- prohibited conduct,” the filing said.

The case is U.S. Commodity Futures Trading Commission v. Oystacher, 15-cv-09196, U.S. District Court, Northern District of Illinois (Chicago).

Before it's here, it's on the Bloomberg Terminal.