CFTC Fines Illinois Software Firm for Role in Spoofing Futures Markets

The Commodity Futures Trading Commission has fined the company owned by software developer Jitesh Thakkar who was allegedly conspiring to spoof the e-mini S&P market. The CFTC has also banned Edge Financial Technologies from providing any computer programming services that could be used in trading regulated markets for a period of two years.

The move comes part of federal regulators’ crack down on illegal high-frequency computer trading.

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Thakkar and his company were charged in 2018 with conspiracy and aiding and abetting the notorious British “flash crash” trader Navinder Sarao in a multiyear scheme that netted millions in illicit gains.

Prosecutors say Edge developed a customized program that enabled Sarao to more successfully spoof the E-mini S&P futures contract from January through October 2013.

“Edge programmed a “Back-of-Book” function that had two features helpful to Trader A’s illegal conduct. First, it kept Trader A’s orders, which were visible to other market participants, behind other orders at a particular price level. This was done to minimize the chances that Trader A’s orders would result in executed trades. Second, the Back-of-Book function immediately and automatically cancelled Trader A’s orders as soon as any portion of these orders was filled by other market participants,” the CFTC further explains.

Spoofers made $40 million over six years

The agency further states that the company provided its software application to Sarao though it was aware he intends to flood the market with bogus large orders to artificially trigger price movements.

To recap, Sarao was extradited to the US in 2016 to face charges over the 2010 “flash crash,” but the government dropped 20 charges against Sarao after he co-operated with the department’s fraud section, including helping the agency gain access to his funds. He also testified against Thakkar and Edge in a bid to reduce his sentence.

Justice Department prosecutors also described Sarao in the filing as a valuable cooperator who educated regulators and enforcement agencies, including the CFTC and FBI, on the world of HFT fraud and how they place fake trades in a bid to manipulate the market.

The British futures trader was blamed for the 2010 stock market drop, while his trading netted him $900,000 profit that day and more than $40 million over six years.

While several traders have been convicted of spoofing, Edge was the first software company to be tried under a 2010 federal anti-spoofing law. The company was ordered to disgorge $24,200 and a civil monetary penalty of $48,400, for a total of $72,600 in monetary relief.

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