Three major banks and eight traders were charged in a “spoofing” case concerning the precious metals market. While such methods have been historically employed by lone traders, U.S. prosecutors found that UBS, Deutsche Bank, and HSBC have all engaged in such activities.
The three banks will have to pay $47 million to settle the charges that some of their partners spoofed metals futures. The hardest hit will be Deutsche Bank with a $30 million settlement, followed by UBS ($15 million), and HSBC ($1.6 million).
On Monday, the Department of Justice revealed that eight persons were charged in the case. Of those, seven people were charged with spoofing, five were employees of the three banking giants, two were traders, and one owned an IT consulting firm.
When spoofing, traders place orders but they cancel them ahead of the finalization of the transaction. The scope is to create the impression that there is a high demand for a particular asset to push its price up. This benefits the trader ultimately.
Spoofing Can Destabilize the Market
The most dangerous traders are those that engage in high-frequency trading because they can severely disrupt the market.
In the latest case, traders are accused of market manipulation including metal futures and the S&P index. The traders allegedly beamed thousands of false orders to trick other traders into trading at prices or numbers that they would have not normally do.
Traders manipulated the futures market remotely, from their offices in Zurich, New York, Singapore, London, and Chicago. Six of them are facing criminal charges, with the rest being only named in the criminal case.
A CFTC spokesperson explained that spoofing is very risky since it manipulates the market with help from technology. The DOJ confirmed that such practices are dangerous since they erode the confidence in U.S. markets.
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