Advantage Futures Fined $1.5 Million Over Risk Managementby and
CFTC also accused brokerage’s CEO Joe Guinan for lapses
Firm was linked in past with accused spoofer Oystacher
Advantage Futures LLC, a Chicago-based brokerage, agreed to pay $1.5 million and settled claims that it failed to supervise one of its customers, had deficient risk management and knowingly made inaccurate statements to U.S. regulators, the Commodity Futures Trading Commission said.
The CFTC accused the firm as well as Joseph Guinan, its chief executive officer, and William Steele, the former chief risk officer, with supervisory failures. In addition to the monetary penalty, the regulator’s order released Wednesday requires Advantage to improve its policies and oversight practices to prevent and detect violations of U.S. commodities laws. Advantage, Guinan and Steele neither admitted nor denied the allegations.
Advantage and Guinan failed to prevent one of its customers from unlawfully spoofing markets after the brokerage was told by three separate exchanges that the illegal behavior was occurring, according to the settlement. The customer wasn’t named.
“Advantage failed to adequately respond to the exchange inquiries and did not conduct a meaningful inquiry into the suspicious trading,” the CFTC said in its order. “For example, Advantage did not investigate the trading details provided by the exchanges, nor did anyone at Advantage speak with the trader about the trading activity in question.”
Advantage was the futures brokerage used by Igor Oystacher, co-founder of 3Red Trading LLC, according to court filings. 3Red and Oystacher were accused in civil court last year by the CFTC of spoofing on the world’s largest futures markets, with that trial set to begin next year. Oystacher, who has been fined for alleged spoofing by CME Group Inc., Eurex AG, and Intercontinental Exchange Inc., has denied engaging in the practice.
Neither Oystacher nor 3Red was named in the CFTC settlement with Advantage. The conduct at issue in the settlement occurred from about November 2011 to at least August 2015, the agency said. Oystacher began using Advantage as his futures broker in November 2011, according to a CFTC affidavit.
“Advantage Futures holds itself to high standards of compliance, risk management, ethics and integrity, and cooperates fully with all regulators,” Guinan said in an e-mailed statement. “The CFTC accepted an offer of settlement and its order recognized our firm’s cooperation throughout the process and our efforts to implement remedial measures. Additionally, Advantage fully reserved for this settlement expense in 2015.”
A spokesman for Oystacher didn’t return a call for comment.
Spoofing is a type of computer-driven manipulation that often goes unchecked, traders complain. It involves flooding the market with fake orders to fool other traders into thinking the market is poised to rise or fall. The fake orders are then canceled and the spoofer flips from being a buyer to being a seller, or vice versa. The spoofer profits from earning the difference in price to buy and sell the contracts, and can repeat the practice thousands of times a day.