It doesn’t matter who you are, or what you do for a living, facing nearly $47 million in fines from the CFTC is a big deal.
But that’s the reality that three major international banks -- UBS, Deutsche Bank and HSBC -- are facing in the wake of a new enforcement action from the U.S. Commodity Futures Trading Commision (CFTC) this week. All three were caught in a wide-ranging investigation into spoofing activity that also named a number of individual traders, according to a report out this week from CNBC.
Under the terms of the action, DB will pay $30 million in fines, UBS $15 million and HSBC another $1.6 million. The Justice Department is also charging eight individuals with crimes related to deceptive trading -- five employees of the banks, two traders at large commodities trading firms and one outside consultant.
In a word: wow.
Per the CNBC story:
“The traders named individually, ranging in age from 30 to 55, face accusations they manipulated various futures markets, including S&P index and precious metals, by placing hundreds, in some cases thousands, of "spoof" orders to induce other market participants to trade at prices, quantities or times they otherwise would not have traded, the Justice Department said.
They traded from their workplaces scattered around the world, from Chicago, New York, London, Zurich, Sydney and Singapore. Six of the individuals were named in both the CFTC and criminal charges. Two others were named in a criminal case.
"Spoofing is a particularly pernicious example of bad actors seeking to manipulate the market through the abuse of technology," said James McDonald, the CFTC's enforcement director. "The technological developments that enabled electronic and algorithmic trading have created new opportunities in our markets."”
For one thing, this is certainly not the last time we’re going to see a story like this. As easy as spoofing has become to pull off, it is almost assuredly easier for the CFTC to spot and catch now, thanks to all of the digital tools at their disposal.
As for the banks themselves, these fines are more than enough to show up on their balance sheets at the end of the year. I wonder how much a little prevention in the moment would have helped them avoid this situation?