CFTC Spoofing Witness Says He's Oystacher Whistle-Blowerby
CGTA Analytics ex-trader says firm spotted spoofing,lost money
3Red's Oystacher accused by CFTC of market manipulation
A former competitor told a federal judge considering whether to impose a trading ban on Igor Oystacher that he filed a whistle-blower complaint over market manipulation and stands to profit if the Commodity Futures Trading Commission wins its lawsuit against the alleged spoofer.
Matthew Wasko, who said he worked for CGTA Analytics before it closed last year, said Monday in Chicago federal court that his firm lost money trading against a spoofer, whom he has since learned was Oystacher. Wasko said CGTA partnered with HTG Capital Partners LLC, a well-known Chicago-based trading firm.
Wasko said CGTA Analytics, which operated as a market maker, observed suspicious trading activity numerous times in 2013 and 2014 in the E-mini S&P 500 futures contract market. He said he and a colleague filed the whistle-blower complaint with the CME and the CFTC in June 2013. The complaint was updated continuously in 2013 and again through 2015 as his firm discovered continuing spoofing conduct, he said.
Wasko’s testimony came on the first day of a hearing to consider the CFTC’s request that Oystacher be barred from trading in at least five futures trading markets while its lawsuit seeking to strip him of his trading license awaits trial.
Wasko said during cross-examination by one of Oystacher’s lawyers that he stood to profit personally if the CFTC recovers money in its case, and that it would be helpful if the CFTC determined that he had helped regulators.
Wasko didn’t discuss specific trades made by Oystacher, but testified generally that what he observed and analyzed was a “trading pattern” in which larger orders were placed on one side of the market and then canceled before an order on the opposite side was traded at a favorable market price.
“We were experiencing losses,” Wasko said. His firm had to constantly alter its valuation of the fair market value during periods of spoofing, and in some instances, it shut down its algorithm and stopped trading in the E-mini S&P market. In an affidavit filed in October 2015, Wasko said he estimated that his firm lost $100,000 because of the spoofing trades and the lost opportunities resulting from the shutdowns of its own computerized trading.
Wasko said he assumed that the spoofer in question was using an algorithm to run what the CFTC said in an opening statement was a “bait and switch” scheme by Oystacher.
Oystacher contends he traded manually and explained the rapidity of his transactions by citing the quick reasoning abilities gained from playing competitive speed chess and having programmed his mouse to enter large orders with one click.
Matthew Menchel, a lawyer for Oystacher, said in his opening remarks that Oystacher didn’t engage in spoofing. The only thing unusual about his trading activity is that he “places very large orders” and so “he sticks out like a sore thumb,” Menchel said.
The CFTC sued Oystacher and his firm, 3Red Trading LLC, in October, alleging that he cheated the market on at least 51 trading days from 2011 to 2014. He is accused of creating the appearance of “false market depth” -- manipulating the market to create the impression of increased interest and price movements favorable to him.
It is a violation of trading rules and of federal law to place large orders with the intention of canceling them. The CFTC told Judge Amy St. Eve that Oystacher had continued trading even after it filed the lawsuit against him, and seeks to bar him from continued trading until the case is resolved.
Also on Monday, a regulatory official from the EUREX market in Germany testified that Oystacher was disciplined three times for spoofing. Karsten Heistermann testified that Oystacher was fined 90,000 euros ($101,000) in the summer of 2014, 250,000 euros in December of 2014, and suspended from trading for 30 days in 2015. He appealed the rulings.
The case is U.S. Commodity Futures Trading Commission v. Oystacher, 15-cv-09196, U.S. District Court, Northern District of Illinois (Chicago).