The U.S. Commodity Futures Trading Commission is suing 3RedTrading LLC and its owner Chicago broker Igor Oystracher for allegedly engaging in spoofing on some of the largest exchanges in the world. The spoofing purportedly took place over 51 trading days between 12/11 and 1/14 on the Chicago Board Options Exchange, the New York Mercantile Exchange, the Chicago Mercantile Exchange, and the Commodity Exchange.
The CFTC claims that Oystacher and 3Red gave the impression of “false market depth” to benefit themselves while hurting other market participants. The regulator believes that the trader spoofed in futures markets that were based on natural gas, copper, an options volatility index, and the S&P 500 equity index.
According to the complaint, 3Red and Oystacher made large passive orders on one side of the market at (or close to) the best bid or offer price, which they would then cancel before executing the trades. The purported orders were made through accounts belonging to 3Red.
Oystacher is accused of using “avoid orders that cross,” a feature on his trading software, while putting a big resting order on one side of the market to deceive others into believing that prices were about to drop or go up. However, because he was using that particular feature, the small order he’d make on the other side of the market would cancel the big resting one within five milliseconds. As a result, says the CFTC, 3Red and Oystacher were able to sell or buy futures contracts in amounts and at price levels that otherwise would not have been available to them if they hadn’t engaged in spoofing.
Bloomberg reports that a source said last month that already a grand jury has heard testimony about Oystacher and his alleged activities. Two other sources told the media outlet that federal prosecutors might be bringing criminal charges.
In the last year, Oystacher has resolved allegations of manipulation with Intercontinental Exchange Inc. and CME Group Inc., which are the two biggest futures markets in the US. He agreed to pay $275K and settled without denying or admitting to the allegations of wrongdoing. CME barred him for a month while ICE, which accused him of making bogus orders to manipulate futures contracts in the Russell 2000 stock index told him to desist.
Now, 3Red is saying that the CFTC charges are meritless. The firm intends to defend itself in court. The regulator wants to bar 3Red from commodities trading and wants financial penalties.
This is the second securities lawsuit brought against 3Red this month. The City of Omaha Policy and Fire Retirement System and trader Thomas E. Kalaway are suing the firm and 22 primary dealers for allegedly manipulating the U.S. Treasury market and related futures contracts.
The plaintiffs claim that dealer banks acted illegally by working with high frequency trading firms, including 3Red, to manipulate the Treasury instruments market. Spoofing was purportedly involved. 3Red also disputes those claims.
Contact our securities law firm today if you suspect your losses are due to securities fraud, asset mismanagement, or other negligent or illegal acts.
CFTC charges 3Red with ‘spoofing’ scheme, Media eFinancial News, October 20, 2015
Chicago Trader Oystacher Accused of Spoofing in Futures, Bloomberg, October 19, 2015