As you'll recall, the CFTC in January dinged Citigroup $25 million for allowing its Treasury trading desk to more or less become a spoofing academy, where at least five traders routinely placed sham orders for the purposes of swinging the market in a favorable direction. The darkly comical outcome of all this was when a young Japan-based trader came to Manhattan to learn the ropes, picked up the art of Treasury futures spoofing, and in one of his first solo trading forays ended up letting a 4,000-lot sham order go through before he could cancel it. His punishment consisted of his supervisor saying, “that's not a smart thing to do.”
Now we have a clearer understanding of why no one ran the incident up the flagpole to compliance or anything: The managing director in charge of the Treasury desk was doing all kinds of spoofing himself, the CFTC says. On Friday, Stephen Gola paid a $350,000 civil monetary penalty for more than 1,000 trading abuses between July 2011 and December 2012 – a time when he was the head trader on the Treasuries team. His former colleague Jonathan Brims, a vice president and fellow Treasury trader, forked over $200,000.
The settlements describe the spoofing in basically identical terms for the two former Citi bankers:
Generally, Gola's spoofing strategy involved placing bids or offers of 1,000 lots or more with the intent to cancel those orders before execution. The spoofing orders were placed in the U.S. Treasury futures markets after another smaller bid or offer was placed on the opposite side of the same or a correlated futures or cash market. Gola placed his spoofing orders to create or exacerbate an imbalance in the order book. This created the impression of greater buying or selling interest than would have existed absent the spoofing orders and was done to induce other market participants to fill Gola's smaller resting orders on the opposite side ofthe market from his spoofing orders in advance of anticipated price changes. Gola cancelled his spoofing orders after either the smaller resting orders had been filled or he believed that the spoofing orders were at too great a risk of being executed.
Yup, that sounds like spoofing alright. There's also this:
In addition to executing the spoofing strategy individually, at times, Gola coordinated with one or more other traders on the U.S. Treasury desk to implement the spoofing strategy. In some of those instances, Gola would place one or more spoofing orders after another trader had placed one or more smaller resting orders in the same or a correlated futures or cash market. In other instances, another trader would place spoofing orders to benefit Gola's smaller resting orders.
The settlement also notes how both Brims and Gola learned of our Tokyo friend's spoofing mishap – the 4,000-lot spoof order that turned into real one – and failed to report it. Oops! According to the terms of the settlement, the two will be banned from placing and rapidly canceling orders in U.S. Treasury futures for six months. Neither works at Citi any longer.
CFTC Orders Former Citigroup Global Markets Inc. Traders Stephen Gola and Jonathan Brims to Pay $350,000 and $200,000, Respectively, and Bans Them from Trading for 6 Months for Spoofing in U.S. Treasury Futures Markets [CFTC]