U.S. COMMODITY FUTURES TRADING COMMISSION FINES SWISS COMPANY FOR EXECUTING ILLEGAL WASH TRADES ON U.S. MARKETS
WASHINGTON, D.C. -- The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing and simultaneous settlement of charges against Swiss company Barry Callebaut Sourcing AG (Barry), relating to illegal wash trading on the Coffee, Sugar & Cocoa Exchange (CSCE), a subsidiary of the New York Board of Trade. The CFTC issued an order dated May 13, 2004, imposing a monetary penalty and other sanctions.
The order finds that on two separate occasions, in November 2001 and July 2002, Barry entered simultaneous orders for equal-and-opposite trades in cocoa futures contracts that resulted in an intentional financial nullity where Barry was on both sides of each transaction after execution on the CSCE. According to the order, the November 2001 transaction involved an equal-and-opposite spread transaction that was ordered through a telephone call in which a Barry trader was on the telephone simultaneously with brokers from two different futures commission merchants (FCMs) giving each broker the opposite side of the matching spread order. The order further finds that in July 2002, a Barry trader placed an order with a broker at one FCM both to buy and sell the same quantity of the same futures contract for the same delivery month at the same price and then to execute the order via a cross-trade. The Barry trader then instructed the broker at the FCM to ‘give up’ the buy side of the transaction to another FCM for clearing.
The CFTC order finds that because the equal-and-opposite transactions appeared to be the purchase and sale of CSCE cocoa futures contracts, but did not in fact result in establishing or liquidating a bona fide market position, and were not intended to do so, Barry violated the Commodity Exchange Act’s (CEA) prohibition against illegal wash sales. Further, the order finds that the transactions resulted in the reporting of non-bona fide prices, and were illegal noncompetitive trades.
The order directs Barry to cease and desist from further violations of the CEA, pay a $25,000 civil penalty, and comply with specified undertakings. In consenting to the entry of the order, Barry neither admitted nor denied the findings made in the order. Barry, for its part, asserts that it was not aware of the fact that these transactions could have been executed legally by means of an ex-pit transfer pursuant to CSCE to Floor Trading Rule 3.06.
The following Division of Enforcement staff were responsible for this case: Lael Campbell, John Dunfee, Paul Hayeck, and Joan Manley.
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