January 29, 2018
CFTC Orders HSBC Securities (USA) Inc. Pay $1.6 Million Penalty for Spoofing In the Precious Metals Futures Markets
CFTC recognizes HSBC’s Cooperation and Substantial Assistance in the Investigation
Washington, DC - The Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against HSBC Securities (USA) Inc. (HSBC) for engaging in numerous acts of spoofing with respect to certain futures products in gold and other precious metals traded on the Commodity Exchange, Inc. (COMEX). The Order finds that HSBC engaged in this activity through one of its traders based in HSBC’s New York office.
The Order requires HSBC to pay a civil monetary penalty of $1.6 million, to cease and desist from violating the Commodity Exchange Act’s prohibition against spoofing, and to take specified steps to implement and strengthen their training, systems, and controls to detect and deter spoofing by HSBC personnel in the futures markets. In accepting HSBC’s offer of settlement, the CFTC recognizes the bank’s cooperation during the Division of Enforcement’s investigation of this matter.
CFTC’s Director of Enforcement Comments
James McDonald, the CFTC’s Director of Enforcement, commented: “Spoofing poses a significant threat to the integrity of our markets and to law-abiding market participants. That’s why the CFTC is committed to vigilantly investigating and prosecuting this sort of misconduct. While we expect market participants to adhere to the rules and regulations governing market conduct, this case also serves as an example of the value of substantial cooperation when wrongdoing is discovered. HSBC cooperated throughout this investigation, and benefitted from its cooperation in the form of a substantially reduced penalty.”
The Order specifically finds that from at least July 16, 2011, through August 2014, HSBC, by and through one of its traders, engaged in spoofing with respect to certain futures products in gold and other precious metals traded on COMEX. Specifically, the Order finds that the trader placed orders for futures contracts in precious metals, primarily gold, with the intent to cancel before their execution. The trader’s spoofing strategy frequently involved placing a relatively small bid or offer with the intent to execute that order (Resting Order) and, prior to the execution of the Resting Order, placing a larger order (or multiple orders), which the trader intended to cancel before execution, on the opposite side of the same market (Spoof Order). Generally, the trader would receive a partial or complete fill of the Resting Order and cancel the Spoof Order before it was filled. The Order finds that this spoofing conduct violated the Commodity Exchange Act.
The CFTC appreciates the assistance of the U.S. Department of Justice, the Federal Bureau of Investigations, the Chicago Mercantile Exchange, Inc., and the UK Financial Conduct Authority.
This case is brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force, and the staff members responsible for this case are Katie Rasor, Lara Turcik, Brandon Wozniak, Alben Weinstein, Candice Aloisi, Patryk J. Chudy, Lenel Hickson, Jr. and Manal M. Sultan.
Last Updated: January 30, 2018