October 2, 2019
CFTC Orders Interdealer Brokers to Pay $25 Million for Fraud in FX Options Markets
Washington, DC – The U.S. Commodity Futures Trading Commission announced today that it issued orders filing and settling charges against two interdealer brokers: BGC Financial, LP and GFI Securities, LLC. The orders find that brokers employed by BGC and GFI on their respective emerging markets foreign exchange options (EFX options) desks made false representations that certain bids and offers were executable and that certain trades had occurred. The orders were entered on Monday, September 30, 2019.
The respective orders require BGC to pay a civil monetary penalty of $15 million and GFI to pay a civil monetary penalty of $10 million. They also require each of the companies to strengthen their internal controls and procedures, to provide for the appointment of a monitor, and to cease and desist from violating the Commodity Exchange Act and CFTC regulations, as charged.
“Brokers and other intermediaries play a critical role in our markets. The CFTC is committed to protecting the integrity of our markets by ensuring they are held accountable for fraudulent misconduct,” said CFTC Director of Enforcement James McDonald.
The respective orders find that BGC and GFI brokers posted bids and offers on their company’s electronic platform for EFX options when, in fact, no trading institution had bid or offered the option at that level—a practice referred to by the brokers as “flying.” The orders further find that BGC and GFI brokers communicated fake trades to their respective clients—a practice they referred to as “printing” a trade. In addition, when a “flown” bid or offer was hit or lifted on the platform, the screen would flash, indicating that a trade had occurred when, in fact, it had not—thereby potentially deceiving all clients using the screen into believing an actual trade had occurred.
By “flying prices” and “printing trades,” BGC and GFI brokers intended to create an illusion of greater liquidity and, in some circumstances, tighter spreads in EFX options on the platform and induce clients to transact in EFX options via the platform at times and prices at which they otherwise might not have.
The CFTC appreciates the assistance of the Office of the Attorney General for the State of New York. The NY OAG also announced today that it had entered into criminal non-prosecution agreements with BGC and GFI for related conduct, assessing monetary penalties in the amounts of $7.5 million and $5 million, respectively, and requiring remediation and the appointment of a monitor in parallel to the CFTC’s orders. BGC’s and GFI’s civil monetary penalty obligations under the orders will be offset by monies paid pursuant to these agreements.
The Division of Enforcement staff responsible for this case are Lara Turcik, Elizabeth May, Christopher Giglio, K. Brent Tomer, Lenel Hickson, Jr. and Manal M. Sultan.