October 1, 2018
CFTC Orders the Bank of Nova Scotia to Pay $800,000 Penalty for Spoofing in the Precious Metals Futures Markets
Bank’s Penalty Was Substantially Reduced in Recognition of Its Self-Reporting, Cooperation, and Remediation
Washington, DC — The Commodity Futures Trading Commission (CFTC) issued an Order filing and settling charges against the Bank of Nova Scotia (BNS) for engaging in multiple acts of spoofing in gold and silver futures contracts traded on the Chicago Mercantile Exchange (CME). The Order finds that BNS engaged in this activity by and through traders on its precious metals trading desk (Traders) from at least June 2013 through June 2016. The Order requires BNS to pay an $800,000 civil monetary penalty and to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing. BNS was notified of the misconduct by its Futures Commission Merchant, and when BNS became aware of the misconduct, BNS reported it to the CFTC.
CFTC Director of Enforcement Comments
James McDonald, CFTC Director of Enforcement, commented: “This case is another great example of the significant benefits of self-reporting and cooperation. We expect market participants to take proactive steps to prevent this sort of misconduct before it starts. But, as this case shows, there is a strong incentive for market participants to quickly and voluntarily report wrongdoing when it is discovered and cooperate with our investigation, as the Bank of Nova Scotia did here. In recognition of its self-reporting and cooperation, the Commission imposed a substantially-reduced penalty.”
The Order finds that the Traders placed orders to buy or sell precious metals futures contracts with the intent to cancel the orders before execution. According to the Order, the spoofing strategy involved a trader placing a small order on one side of the market at or near the best price (the Genuine Order), then placing a large bid or offer on the opposite side of the market away from the best price (the Spoof Order). The Order finds that the Spoof Orders created the impression of greater buying or selling interest than would have otherwise existed without the Spoof Orders, and the Spoof Orders were placed in order to induce other market participants to fill the smaller resting Genuine Orders.
In addition to the $800,000 penalty, the Order requires BNS to take specified steps to maintain and implement training programs and systems and controls to detect and deter spoofing. The Order also makes findings about the nature and significance of BNS’s early self-reporting, cooperation, and remediation.
The CFTC thanks and acknowledges the assistance of the CME Group, Inc.
This case is brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force, and the staff members responsible are Greta Gao, Jonah McCarthy, Jennifer Blakley, Dmitriy Vilenskiy, A. Daniel Ullman II, Christine Ryall, and Paul G. Hayeck.