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CFTC Orders JPMorgan to Pay Record $920M for Spoofing and Manipulation (2020)

280 points by evergrande 5y ago

janandonly 5y ago
bUt I tHoUghT butCoin was uZed f0r fRaUgHt ??? And now you are telling me real banks and real US dollars are used in frauds too ?? The horror ! /sarcasm
wanderinghogan 5y ago
I wish the press release indicated how much JPMS gained, so I could know if JPMS is still significantly ahead after these penalties. Does the deferred criminal prosecution mean, basically, pay your fine and don't do it again and you won't be prosecuted? So they really face no long term negatives if they gained more by knowingly breaking the law and paying a fine later?
- pixelpoet 5y ago
  100% agree, the crucial thing to know is if this is just a cost of doing business and is effectively a government bribe to let them keep doing it.
- andylynch 5y ago
  This whould be the $172M in disgorgement mentioned in the order.
  - wanderinghogan 5y ago
    thank you!
lordnacho 5y ago
As a trader, that does look really bad. These people know that the market looks at the orders to guess the state of supply and demand. The penalty looks big but it's over an 8 year period. It's not exactly a secret that some market participants work out some kind of imbalance measure, and of you've ever implemented a system like that, like I've done, it will have crossed your mind that you could shove a load of orders in that mask the imbalance for everyone else. But you have heard of the spoofing rules and you don't do it. If we want a functioning market without a reputation for sharks, there's some rules to be followed. Iirc they got a guy thrown in jail for this? Sarao or something like that? He had someone build him a spoofing machine and made a lot of money, though it's not clear to me how much was from doing this specifically. In case you're wondering about that intention to cancel phrase, of course there are participants like market makers who do cancel a lot of orders. In that case it's a matter of them following the market in providing liquidity, they are not doing it to fool everyone.
- andylynch 5y ago
  Yes - you're thinking of Navinder Sarao, the so-called 'Hound of Hounslow', held at least partly responsible for the 2010 flash crash.
- smabie 5y ago
  In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants would adapt and the world would move on.
  - arcticbull 5y ago
    > In crypto spoofing is pretty prevalent. It's completely legal. If big financial institutions would risk fines and prosecution to do this is a market where it's illegal, what on earth makes people think it wouldn't happen in markets where it's legal? > There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. I assume you're alluding to Cumberland/DRW?
  - olalonde 5y ago
    There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
    - fnordfnordfnord 5y ago
      >Make orders non-cancellable for a certain period of time, Exactly, in a similar manner that the PDT 4 trades in 5 days rule is implemented.
    - murbard2 5y ago
      One solution which should be on the table is to not prevent it, at which point people stop looking at order book imbalance or volume as a signal. The fundamental question is what is lost if there's no signal in order book data. Does it hurt price formation? Does it hurt liquidity? All of these are empirical questions. You also have to compare it not to the scenario where everyone abides by anti spoofing rules, but one in which compliance is imperfect (as evidenced by this article). There are defenses against market manipulation, but they can run afoul of the very rules against it, which leaves law abiding actors vulnerable. It's not clear at all that the current equilibrium is the right one, but sadly the discourse is rarely around the rules most conducive to liquidity, it generally starts with the premise that any kind of strategic order placement is inherently deceptive and wrong.
arcticbull 5y ago
Just remember all this? It's completely legal in the crypto markets. It's bad here, and its so much worse there.
- nnx 5y ago
  On the other hand, it will always happen given the incentive. JPM got caught, but how many do not get caught or arrange the spoofing in such a away that they have (more) plausible deniability. This law is unworkable and not sure if there's anything benefit in the end... as in crypto anyone who spoofs can have their bluff called anytime, so perhaps transparent free-for-all market is better for price discovery than pretending "spoof do not exist and are illegal".
  - arcticbull 5y ago
    > On the other hand, it will always happen given the incentive. A big negative incentive is law enforcement. Otherwise you could make the same argument for literally every single other kind of crime. Someone does you wrong? Well there's a big incentive to straight up take their kneecaps. But you know, the law and whatnot seriously disincentivizes that kind of behavior. > This law is unworkable and not sure if there's anything benefit in the end... So surely you must be mad that JP Morgan got fined for this right? Supportive of Mr Dimon? Good for them getting one over on ol' Joe Sixpack, right? [edit] > as in crypto anyone who spoofs can have their bluff called anytime Not at all, the overwhelming majority of crypto trading happens on centralized, trusted, opaque exchanges. Off-chain.
    - olalonde 5y ago
      If I understand correctly, the people harmed by the practice of spoofing are day traders who naively believe they can do technical analysis on an order book to determine the short-term direction of prices. Nope, I don't really feel sorry for either of them.
      - arcticbull 5y ago
b8 5y ago
I wonder how they spoofed market trades though. It's possible to do it with crypto before the transaction is able to be verified. Alas, JPMorgan Chase will just eat the cost and continue to do sketchy stuff. All the most banks do similar sketchy stuff. That's why credit unions (CU) were made and why I bank with a CU.
- runeks 5y ago
  They didn’t spoof trades. They placed orders without the intent of trading anything. > The order finds that, from at least 2008 through 2016, JPM, through numerous traders on its precious metals and Treasuries trading desks, including the heads of both desks, placed hundreds of thousands of orders to buy or sell certain gold, silver, platinum, palladium, Treasury note, and Treasury bond futures contracts with the intent to cancel those orders prior to execution.
  - arcticbull 5y ago
    > They didn’t spoof trades. They placed orders without the intent of trading anything. That's the definition of a spoof trade. [1] > Spoofing is a form of market manipulation in which a trader places one or more highly-visible orders but has no intention of keeping them. [1] https://www.investopedia.com/terms/s/spoofy.asp https://www.investopedia.com/terms/s/spoofy.asp
    - caffeine 5y ago
      I think you misunderstood GP - he is saying they didn’t spoof trades, ie order executions, which is correct because you can’t spoof trades. You are talking about spoofed orders. A spoofed trade doesn’t really exist - the closest thing would be a wash trade, where you trade with yourself to make other people think a price is trading.
      - deleted 5y ago
        [deleted]
      - arcticbull 5y ago
choppaface 5y ago
isn’t most of crypto trading spoofing? https://arxiv.org/pdf/2108.10984.pdf https://arxiv.org/pdf/2108.10984.pdf When will regulators crack down on that?
- arcticbull 5y ago
  This is one of the main reasons that bitcoin ETFs keep getting rejected by the SEC. [1] [1] https://www.sec.gov/rules/sro/cboebzx/2021/34-93559.pdf https://www.sec.gov/rules/sro/cboebzx/2021/34-93559.pdf (page 15).
derriz 5y ago
Why do CFTC try to police this? For the money or optics? Orders far from the BBO are clearly irrelevant and those close to the BBO are not "free" for the spoofer given they have to bear the risk that the orders could be filled if the market moves. Effectively it means anyone cancelling an order has to worry that their action could be interpreted as "spoofing" - which will make market making more risky and expensive. The only ones this type of enforcement "protects" are are those who naively think they've discovered a strong trading signal based on order volumes away from the BBO. Putting a $1 bid on a Rolex on ebay which is currently attracting $10k bids isn't going to fool anyone into thinking that demand is increasing and is relatively harmless. For me real manipulation involves actual trades, not cancelled/unexecuted orders, and should be policed stringently. E.g. banging the market at close in order to nudge the closing price in order to boost the value of a position in a different book.
- adriancr 5y ago
  > anyone cancelling an order has to worry that their action could be interpreted as "spoofing" And getting investigated by CFTC, and CFTC finding proof that you never intended to execute it AND you profiting from steering market in the desired direction which would not have happened without the fake trade...
  - derriz 5y ago
    There were no "fake trades" involved in this case - only orders which were cancelled.
    - adriancr 5y ago
      they were fined for 'spoofed' trades which in my view are fake trades - they never intended for them to execute, only to steer the market in a direction they want to fill in orders they had at a profit. if those trades ran the risk of executing they would have probably been cancelled fast and moved further.
      - 5y ago
dudeinjapan 5y ago
For the uninitiated, "spoofing" does NOT mean what you think it might, e.g. spoofing network packets or making fake trade records. "Spoofing" simply means placing orders on the exchange orderbook which one supposedly does not intend to execute. I've never understood this, because any bid/ask order on the orderbook CAN be executed against, until it is canceled. If they were "flashing" large bids/asks that were being immediately canceled to trick other algos into lifting, that is annoying but it's the algos that fall for the spoof that are stupid. The algos should just hit the large spoof bid and the spoofer will be left holding the bag.
- anonymoushn 5y ago
  If you spoof a decent distance from the inside, you wouldn't be that sad to get filled anyway
- CraigJPerry 5y ago
  How would they be left holding the bag? If the going rate for a bar of chocolate is $1, and i add 100s of listings for a bar of chocolate at $1.10, then if you buy my spoof chocolate I’ll have earned 10 cents in arbitrage.
- adriancr 5y ago
  Ideally the less manipulation you have the better working market. So, it's good that spoofing is illegal. Their only purpose here was to: "Through these spoof orders, the traders intentionally sent false signals of supply or demand designed to deceive market participants into executing against other orders they wanted filled. " That being said, algos could have hit the large spoof bid, but imagine if it was legitimate, that would mean price movement against them and leaving them holding bags.
  - hornokpleas 5y ago
    > Ideally the less manipulation you have the better working market. So, it's good that spoofing is illegal. I think this is debatable. There's an ideal where no one spoofs and market prices are accurate at all times. But it's very difficult to enforce perfectly - there is no bright line test for whether you wanted a trade to execute or not, when you placed it. So in practice you are just always partially enforcing it and keeping the manipulation not too obvious. The other possible solution is that anyone can place any order of any type any time they like, for any reason. The constraint is that if you place an order and it trades, you have to honour it. This leads to a situation where no one can trust the order book, but traded prices do reflect market truth - because of course no one wants to trade at an inaccurate price (not in their favour). The plus side is that it's much easier to make the system work. You don't have to run an arms race with people using sophisticated manipulation which can't yet be detected or prevented. It's not clear whether order books giving (somewhat) accurate information is worth both the direct costs of enforcement and the potential unfairness of some spoofing rules being enforced and some not. It might be - but it's not clear that it definitely is.
axismundi 5y ago
“This action sends the important message that if you engage in manipulative and deceptive trade practices you will be caught, punished, and forced to give up your ill-gotten gains,” added Division of Enforcement Director James McDonald. No, Mr McDonald, it's quite the opposite. The important message is that if your organization can keep the profits from criminal activities higher than the penalties, they can perpetuate it. That's because there are virtually no other consequences for any individual criminals personally responsible for this, and none of them was persecuted, punished and forced to give up his ill-gotten gains.
- BizarroLand 5y ago
  If any of us had the opportunity to make $1 billion dollars and pay a $920 million dollar "naughty boy" fine after the fact, who here would say no? The fine should be ALL of the ill-gotten gains and then a naughty boy fine on top of it. To do otherwise means that you did not do justice.
  - evanpw 5y ago
    That's exactly what they did. The article says $172m disgorgement (how much the CFTC thinks they profited from this), $311m restitution (the amount the CFTC thinks JPM harmed others but didn't capture), and $436m civil penalty ("naughty boy" fine).
    - BizarroLand 5y ago
      I read that also, but it wasn't clear to me that the disgorgement was the profit, I assumed it was just what they had on hand from their takings, like if you rob a bank and get caught with $5k left then they would disgorge you of the $5k and then deal with the rest later.
  - TrainedMonkey 5y ago
    I feel like both you and parent are ignoring operational + reputation costs of being naughty boys. If we are saying the bad behavior should not be profitable the fine should be above (ill gotten gains - operational costs it took to acquire them + whatever interest those ill gotten gains received before the culprit got caught). Reputational losses are also a thing, agencies and whistleblowers will be paying a lot more attention to this sort of thing from JPMorgan from now on. Maybe a lesser effect would be morally conscious people (in finance haha) choosing not to work there. Of course it is also possible that Chase PR machine greases the right hands to negate all of the downsides, and then you have a point that current political/regulatory climate is allowing this is be a profitable business model.
ohthehugemanate 5y ago
Across 8 years, what was the profit on this illegal activity? In any other branch of law there is a concept of the sentence providing a deterrent, or at least removing from the actor from the opportunity to repeat offend. Can someone knowledgeable help me understand why these concepts seem missing from financial market penalties like this? The same people still have their license, and probably didn't even suffer a loss on the activity.
- gameshot911 5y ago
  > JPM is required to pay a total of $920.2 million—the largest amount of monetary relief ever imposed by the CFTC—including the highest restitution ($311,737,008), disgorgement ($172,034,790), and civil monetary penalty ($436,431,811) amounts in any spoofing case. Disgorgement is the illegally gained profits they have to give up. The monetary penalty is the additional deterrent on top.
bbarn 5y ago
I was a CFTC consultant for a time analysing suspect code subpoenaed in an investigation. I can say that the parameters for analysis were very strict and required explicit proof of spoofing by the app involved. The people I was involved with were definitely not ghost hunters. They took their role very seriously and were not looking to bust someone who wasn't being intentionally manipulative. I'm sure there are other anecdotes, but it left me feeling like at least this government org was doing what it was supposed to.
ushakov 5y ago
I bet even with $920M fine they're still profitable
- awestroke 5y ago
  These clowns give out 50m bonus checks to traders on a regular basis. They are more than fine, this fine probably corresponds to less than 5% of what they gained from spoofing trades to begin with
  - phyalow 5y ago
    In 2021 nobody on the sellside in a trading seat is making $50m a year or anywhere close to that.
epgui 5y ago
September 29, 2020?
DevKoala 5y ago
Why did it start in 2008 and end in 2016. What happened there?
grouphugs 5y ago
i'd feel more comfortable with that money going in my pocket, so far this just sounds like another scam
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dgellow 5y ago
Could someone add 2020 to the title?
jollybean 5y ago
They should be barred from participating in the activity.
Traster 5y ago
I think one of the things people ought to remember with these cases is that this is probably really bad for JPM - over the years this took place the traders will have been taking a huge portion of these profits as bonuses getting incredibly wealthy. Then the CFTC comes along and goes "This is illegal, we're taking all the profits you made from this trading + $500m in fines" at which point JPM has already paid out most of the profits to the traders, so not only do they have a massive fine, lose most of the profit from their trading on those desks for best part of a decade, they've already paid the traders a shit tonne for the liability they incurred. I had a look at their accounts but it's very difficult to tell how much JPM really made on these trading desks over that time (even ballpark) but it may well be that this fine means that JPM would essentially have been better not being in this business at all.
tanjiro 5y ago
Should they have not been suspended from trading for a certain period of time in addition to the fine? Take for eg, sports as an analogy - Individual players, no matter who popular they are, are almost always suspended/banned if found cheating. Capital gains over last few years have been insane. The fine might be higher but a 400MM profit 5 years ago would have easily doubled just investing in SP500.
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superfunny 5y ago
This took place over a year ago - why is it being posted now?
MrMan 5y ago
since there is optionality in the order book perhaps a way to combat this would be to charge a proportionally higher fee for orders farther out of the money? like a real options book.
caffeine 5y ago
Unpopular opinion here: these rules are stupid. It’s like fining or jailing someone for bluffing in poker. Of course people are spoofing or doing other manipulative activity. Similar things happen in retail all the time with no jail sentences, it’s just not algorithmic. “40% off but the offer ends in 3 hours!” is designed to mislead you into thinking there is a short-term mispricing of the product in a very similar way. Or the real estate market, where basically every single price you see is a lie. Or the used car market - it’s $15k, but when you go to pay you find out it’s $5k more to actually get the wheels or something. If only any of these other markets were HALF as clean and transparent as the lit public order books (even if they were unregulated!) they would be massively better than they are now.
- fnordfnordfnord 5y ago
  Other markets are also rife with deceptive, arguably fraudulent practices so they should be policed first? The CFTC isn't even empowered to regulate those other markets.
  - joshsyn 5y ago
    Why can't the investors be aware of these sort of things happen? How long can the regulators keep playing catchup so the investors are disillusioned that everything is fair value.
  - caffeine 5y ago
    I’m saying it’s not really deceptive or fraudulent. Is it fraudulent that you offer your house for sale, but when you get a few buyers willing to pay the asking price, you move the price up? Not really. But that is WAY more manipulative than anything that is even POSSIBLE in the public markets, let alone what’s allowed. (The FX markets are an exception where this can happen on certain platforms). I’m saying we tolerate these behaviours in every other market because they are not really fraud. It’s not lying to say you are bid and then cancel it later, so long as you honor any trades you do get.
- joshsyn 5y ago
  I am with you there. We simply can't regulate everything. Often state actors themselves are corrupted or really just hindrance to progress.
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280 points by evergrande 5y ago

bUt I tHoUghT butCoin was uZed f0r fRaUgHt ??? And now you are telling me real banks and real US dollars are used in frauds too ?? The horror ! /sarcasm

wanderinghogan 5y ago

I wish the press release indicated how much JPMS gained, so I could know if JPMS is still significantly ahead after these penalties. Does the deferred criminal prosecution mean, basically, pay your fine and don't do it again and you won't be prosecuted? So they really face no long term negatives if they gained more by knowingly breaking the law and paying a fine later?

pixelpoet 5y ago
100% agree, the crucial thing to know is if this is just a cost of doing business and is effectively a government bribe to let them keep doing it.
andylynch 5y ago
This whould be the $172M in disgorgement mentioned in the order.
- wanderinghogan 5y ago
  thank you!

lordnacho 5y ago

As a trader, that does look really bad. These people know that the market looks at the orders to guess the state of supply and demand. The penalty looks big but it's over an 8 year period. It's not exactly a secret that some market participants work out some kind of imbalance measure, and of you've ever implemented a system like that, like I've done, it will have crossed your mind that you could shove a load of orders in that mask the imbalance for everyone else. But you have heard of the spoofing rules and you don't do it. If we want a functioning market without a reputation for sharks, there's some rules to be followed. Iirc they got a guy thrown in jail for this? Sarao or something like that? He had someone build him a spoofing machine and made a lot of money, though it's not clear to me how much was from doing this specifically. In case you're wondering about that intention to cancel phrase, of course there are participants like market makers who do cancel a lot of orders. In that case it's a matter of them following the market in providing liquidity, they are not doing it to fool everyone.

andylynch 5y ago
Yes - you're thinking of Navinder Sarao, the so-called 'Hound of Hounslow', held at least partly responsible for the 2010 flash crash.
smabie 5y ago
In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants would adapt and the world would move on.
- arcticbull 5y ago
  > In crypto spoofing is pretty prevalent. It's completely legal. If big financial institutions would risk fines and prosecution to do this is a market where it's illegal, what on earth makes people think it wouldn't happen in markets where it's legal? > There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. I assume you're alluding to Cumberland/DRW?
- olalonde 5y ago
  There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
  - fnordfnordfnord 5y ago
    >Make orders non-cancellable for a certain period of time, Exactly, in a similar manner that the PDT 4 trades in 5 days rule is implemented.
  - murbard2 5y ago
    One solution which should be on the table is to not prevent it, at which point people stop looking at order book imbalance or volume as a signal. The fundamental question is what is lost if there's no signal in order book data. Does it hurt price formation? Does it hurt liquidity? All of these are empirical questions. You also have to compare it not to the scenario where everyone abides by anti spoofing rules, but one in which compliance is imperfect (as evidenced by this article). There are defenses against market manipulation, but they can run afoul of the very rules against it, which leaves law abiding actors vulnerable. It's not clear at all that the current equilibrium is the right one, but sadly the discourse is rarely around the rules most conducive to liquidity, it generally starts with the premise that any kind of strategic order placement is inherently deceptive and wrong.

arcticbull 5y ago

Just remember all this? It's completely legal in the crypto markets. It's bad here, and its so much worse there.

nnx 5y ago
On the other hand, it will always happen given the incentive. JPM got caught, but how many do not get caught or arrange the spoofing in such a away that they have (more) plausible deniability. This law is unworkable and not sure if there's anything benefit in the end... as in crypto anyone who spoofs can have their bluff called anytime, so perhaps transparent free-for-all market is better for price discovery than pretending "spoof do not exist and are illegal".
- arcticbull 5y ago
  > On the other hand, it will always happen given the incentive. A big negative incentive is law enforcement. Otherwise you could make the same argument for literally every single other kind of crime. Someone does you wrong? Well there's a big incentive to straight up take their kneecaps. But you know, the law and whatnot seriously disincentivizes that kind of behavior. > This law is unworkable and not sure if there's anything benefit in the end... So surely you must be mad that JP Morgan got fined for this right? Supportive of Mr Dimon? Good for them getting one over on ol' Joe Sixpack, right? [edit] > as in crypto anyone who spoofs can have their bluff called anytime Not at all, the overwhelming majority of crypto trading happens on centralized, trusted, opaque exchanges. Off-chain.
  - olalonde 5y ago
    If I understand correctly, the people harmed by the practice of spoofing are day traders who naively believe they can do technical analysis on an order book to determine the short-term direction of prices. Nope, I don't really feel sorry for either of them.
    - arcticbull 5y ago

b8 5y ago

I wonder how they spoofed market trades though. It's possible to do it with crypto before the transaction is able to be verified. Alas, JPMorgan Chase will just eat the cost and continue to do sketchy stuff. All the most banks do similar sketchy stuff. That's why credit unions (CU) were made and why I bank with a CU.

runeks 5y ago
They didn’t spoof trades. They placed orders without the intent of trading anything. > The order finds that, from at least 2008 through 2016, JPM, through numerous traders on its precious metals and Treasuries trading desks, including the heads of both desks, placed hundreds of thousands of orders to buy or sell certain gold, silver, platinum, palladium, Treasury note, and Treasury bond futures contracts with the intent to cancel those orders prior to execution.
- arcticbull 5y ago
  > They didn’t spoof trades. They placed orders without the intent of trading anything. That's the definition of a spoof trade. [1] > Spoofing is a form of market manipulation in which a trader places one or more highly-visible orders but has no intention of keeping them. [1] https://www.investopedia.com/terms/s/spoofy.asp https://www.investopedia.com/terms/s/spoofy.asp
  - caffeine 5y ago
    I think you misunderstood GP - he is saying they didn’t spoof trades, ie order executions, which is correct because you can’t spoof trades. You are talking about spoofed orders. A spoofed trade doesn’t really exist - the closest thing would be a wash trade, where you trade with yourself to make other people think a price is trading.
    - deleted 5y ago
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    - arcticbull 5y ago

choppaface 5y ago

isn’t most of crypto trading spoofing? https://arxiv.org/pdf/2108.10984.pdf https://arxiv.org/pdf/2108.10984.pdf When will regulators crack down on that?

arcticbull 5y ago
This is one of the main reasons that bitcoin ETFs keep getting rejected by the SEC. [1] [1] https://www.sec.gov/rules/sro/cboebzx/2021/34-93559.pdf https://www.sec.gov/rules/sro/cboebzx/2021/34-93559.pdf (page 15).

derriz 5y ago

Why do CFTC try to police this? For the money or optics? Orders far from the BBO are clearly irrelevant and those close to the BBO are not "free" for the spoofer given they have to bear the risk that the orders could be filled if the market moves. Effectively it means anyone cancelling an order has to worry that their action could be interpreted as "spoofing" - which will make market making more risky and expensive. The only ones this type of enforcement "protects" are are those who naively think they've discovered a strong trading signal based on order volumes away from the BBO. Putting a $1 bid on a Rolex on ebay which is currently attracting $10k bids isn't going to fool anyone into thinking that demand is increasing and is relatively harmless. For me real manipulation involves actual trades, not cancelled/unexecuted orders, and should be policed stringently. E.g. banging the market at close in order to nudge the closing price in order to boost the value of a position in a different book.

adriancr 5y ago
> anyone cancelling an order has to worry that their action could be interpreted as "spoofing" And getting investigated by CFTC, and CFTC finding proof that you never intended to execute it AND you profiting from steering market in the desired direction which would not have happened without the fake trade...
- derriz 5y ago
  There were no "fake trades" involved in this case - only orders which were cancelled.
  - adriancr 5y ago
    they were fined for 'spoofed' trades which in my view are fake trades - they never intended for them to execute, only to steer the market in a direction they want to fill in orders they had at a profit. if those trades ran the risk of executing they would have probably been cancelled fast and moved further.
    - 5y ago

dudeinjapan 5y ago

For the uninitiated, "spoofing" does NOT mean what you think it might, e.g. spoofing network packets or making fake trade records. "Spoofing" simply means placing orders on the exchange orderbook which one supposedly does not intend to execute. I've never understood this, because any bid/ask order on the orderbook CAN be executed against, until it is canceled. If they were "flashing" large bids/asks that were being immediately canceled to trick other algos into lifting, that is annoying but it's the algos that fall for the spoof that are stupid. The algos should just hit the large spoof bid and the spoofer will be left holding the bag.

anonymoushn 5y ago
If you spoof a decent distance from the inside, you wouldn't be that sad to get filled anyway
CraigJPerry 5y ago
How would they be left holding the bag? If the going rate for a bar of chocolate is $1, and i add 100s of listings for a bar of chocolate at $1.10, then if you buy my spoof chocolate I’ll have earned 10 cents in arbitrage.
adriancr 5y ago
Ideally the less manipulation you have the better working market. So, it's good that spoofing is illegal. Their only purpose here was to: "Through these spoof orders, the traders intentionally sent false signals of supply or demand designed to deceive market participants into executing against other orders they wanted filled. " That being said, algos could have hit the large spoof bid, but imagine if it was legitimate, that would mean price movement against them and leaving them holding bags.
- hornokpleas 5y ago
  > Ideally the less manipulation you have the better working market. So, it's good that spoofing is illegal. I think this is debatable. There's an ideal where no one spoofs and market prices are accurate at all times. But it's very difficult to enforce perfectly - there is no bright line test for whether you wanted a trade to execute or not, when you placed it. So in practice you are just always partially enforcing it and keeping the manipulation not too obvious. The other possible solution is that anyone can place any order of any type any time they like, for any reason. The constraint is that if you place an order and it trades, you have to honour it. This leads to a situation where no one can trust the order book, but traded prices do reflect market truth - because of course no one wants to trade at an inaccurate price (not in their favour). The plus side is that it's much easier to make the system work. You don't have to run an arms race with people using sophisticated manipulation which can't yet be detected or prevented. It's not clear whether order books giving (somewhat) accurate information is worth both the direct costs of enforcement and the potential unfairness of some spoofing rules being enforced and some not. It might be - but it's not clear that it definitely is.

axismundi 5y ago

“This action sends the important message that if you engage in manipulative and deceptive trade practices you will be caught, punished, and forced to give up your ill-gotten gains,” added Division of Enforcement Director James McDonald. No, Mr McDonald, it's quite the opposite. The important message is that if your organization can keep the profits from criminal activities higher than the penalties, they can perpetuate it. That's because there are virtually no other consequences for any individual criminals personally responsible for this, and none of them was persecuted, punished and forced to give up his ill-gotten gains.

BizarroLand 5y ago
If any of us had the opportunity to make $1 billion dollars and pay a $920 million dollar "naughty boy" fine after the fact, who here would say no? The fine should be ALL of the ill-gotten gains and then a naughty boy fine on top of it. To do otherwise means that you did not do justice.
- evanpw 5y ago
  That's exactly what they did. The article says $172m disgorgement (how much the CFTC thinks they profited from this), $311m restitution (the amount the CFTC thinks JPM harmed others but didn't capture), and $436m civil penalty ("naughty boy" fine).
  - BizarroLand 5y ago
    I read that also, but it wasn't clear to me that the disgorgement was the profit, I assumed it was just what they had on hand from their takings, like if you rob a bank and get caught with $5k left then they would disgorge you of the $5k and then deal with the rest later.
- TrainedMonkey 5y ago
  I feel like both you and parent are ignoring operational + reputation costs of being naughty boys. If we are saying the bad behavior should not be profitable the fine should be above (ill gotten gains - operational costs it took to acquire them + whatever interest those ill gotten gains received before the culprit got caught). Reputational losses are also a thing, agencies and whistleblowers will be paying a lot more attention to this sort of thing from JPMorgan from now on. Maybe a lesser effect would be morally conscious people (in finance haha) choosing not to work there. Of course it is also possible that Chase PR machine greases the right hands to negate all of the downsides, and then you have a point that current political/regulatory climate is allowing this is be a profitable business model.

ohthehugemanate 5y ago

Across 8 years, what was the profit on this illegal activity? In any other branch of law there is a concept of the sentence providing a deterrent, or at least removing from the actor from the opportunity to repeat offend. Can someone knowledgeable help me understand why these concepts seem missing from financial market penalties like this? The same people still have their license, and probably didn't even suffer a loss on the activity.

gameshot911 5y ago
> JPM is required to pay a total of $920.2 million—the largest amount of monetary relief ever imposed by the CFTC—including the highest restitution ($311,737,008), disgorgement ($172,034,790), and civil monetary penalty ($436,431,811) amounts in any spoofing case. Disgorgement is the illegally gained profits they have to give up. The monetary penalty is the additional deterrent on top.

bbarn 5y ago

I was a CFTC consultant for a time analysing suspect code subpoenaed in an investigation. I can say that the parameters for analysis were very strict and required explicit proof of spoofing by the app involved. The people I was involved with were definitely not ghost hunters. They took their role very seriously and were not looking to bust someone who wasn't being intentionally manipulative. I'm sure there are other anecdotes, but it left me feeling like at least this government org was doing what it was supposed to.

ushakov 5y ago

I bet even with $920M fine they're still profitable

awestroke 5y ago
These clowns give out 50m bonus checks to traders on a regular basis. They are more than fine, this fine probably corresponds to less than 5% of what they gained from spoofing trades to begin with
- phyalow 5y ago
  In 2021 nobody on the sellside in a trading seat is making $50m a year or anywhere close to that.

epgui 5y ago

September 29, 2020?

DevKoala 5y ago

Why did it start in 2008 and end in 2016. What happened there?

grouphugs 5y ago

i'd feel more comfortable with that money going in my pocket, so far this just sounds like another scam

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dgellow 5y ago

Could someone add 2020 to the title?

jollybean 5y ago

They should be barred from participating in the activity.

Traster 5y ago

I think one of the things people ought to remember with these cases is that this is probably really bad for JPM - over the years this took place the traders will have been taking a huge portion of these profits as bonuses getting incredibly wealthy. Then the CFTC comes along and goes "This is illegal, we're taking all the profits you made from this trading + $500m in fines" at which point JPM has already paid out most of the profits to the traders, so not only do they have a massive fine, lose most of the profit from their trading on those desks for best part of a decade, they've already paid the traders a shit tonne for the liability they incurred. I had a look at their accounts but it's very difficult to tell how much JPM really made on these trading desks over that time (even ballpark) but it may well be that this fine means that JPM would essentially have been better not being in this business at all.

tanjiro 5y ago

Should they have not been suspended from trading for a certain period of time in addition to the fine? Take for eg, sports as an analogy - Individual players, no matter who popular they are, are almost always suspended/banned if found cheating. Capital gains over last few years have been insane. The fine might be higher but a 400MM profit 5 years ago would have easily doubled just investing in SP500.

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superfunny 5y ago

This took place over a year ago - why is it being posted now?

MrMan 5y ago

since there is optionality in the order book perhaps a way to combat this would be to charge a proportionally higher fee for orders farther out of the money? like a real options book.

caffeine 5y ago

Unpopular opinion here: these rules are stupid. It’s like fining or jailing someone for bluffing in poker. Of course people are spoofing or doing other manipulative activity. Similar things happen in retail all the time with no jail sentences, it’s just not algorithmic. “40% off but the offer ends in 3 hours!” is designed to mislead you into thinking there is a short-term mispricing of the product in a very similar way. Or the real estate market, where basically every single price you see is a lie. Or the used car market - it’s $15k, but when you go to pay you find out it’s $5k more to actually get the wheels or something. If only any of these other markets were HALF as clean and transparent as the lit public order books (even if they were unregulated!) they would be massively better than they are now.

fnordfnordfnord 5y ago
Other markets are also rife with deceptive, arguably fraudulent practices so they should be policed first? The CFTC isn't even empowered to regulate those other markets.
- joshsyn 5y ago
  Why can't the investors be aware of these sort of things happen? How long can the regulators keep playing catchup so the investors are disillusioned that everything is fair value.
- caffeine 5y ago
  I’m saying it’s not really deceptive or fraudulent. Is it fraudulent that you offer your house for sale, but when you get a few buyers willing to pay the asking price, you move the price up? Not really. But that is WAY more manipulative than anything that is even POSSIBLE in the public markets, let alone what’s allowed. (The FX markets are an exception where this can happen on certain platforms). I’m saying we tolerate these behaviours in every other market because they are not really fraud. It’s not lying to say you are bid and then cancel it later, so long as you honor any trades you do get.
joshsyn 5y ago
I am with you there. We simply can't regulate everything. Often state actors themselves are corrupted or really just hindrance to progress.

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