Equities and futures regulators announced four significant fines for spoofing last week: (1) FINRA and the major stock exchanges fined and suspended a man the Wall Street Journal dubbed “the Czar of Overseas Day Trading”; (2) the CFTC fined Chicago proprietary trading firm Geneva Trading $1.5 million for spoofing by three former traders in a wide variety of products; (3) the CFTC fined a New Jersey asset manager and a former trader $2.3 million for spoofing metals and oil contracts; and (4) the CFTC fined Mizuho Bank $250K for spoofing Treasuries and Eurodollar rates. The overseas day trading case and the metals spoofing case are the most interesting.

The metals case marks the first time that a futures regulator has charged someone with spoofing across two different products traded on two different exchanges. In addition to more garden-variety one-product spoofing, the CFTC charged trader Michael Franko with cross-market spoofing between COMEX and LME:

With respect to Franko’s cross-market conduct on COMEX and LME, Franko sought to take advantage of the general correlation, particularly in the short term, between prices of COMEX copper and LME copper futures contracts. Traders’ awareness of this correlation allowed Franko to play one copper futures market off the other. Specifically, Franko entered and cancelled Spoof Orders in the COMEX copper futures market to affect Genuine Orders in the LME copper futures market, and he entered and cancelled Spoof Orders in the LME copper futures market to affect Genuine Orders in the COMEX copper futures market.

Futures regulators have previously brought enforcement actions targeting efforts to sway prices in physical markets in order to benefit a held position in a related futures product (e.g., CFTC v Statoil, where the trader aggressively bought physical propane in order to boost the value of a held swaps position), and securities regulators have brought enforcement actions targeting efforts to sway prices in stocks in order to benefit held options positions (e.g., SEC v Lek), but the Franko case is the first time a futures regulator has targeted a trading pattern across two different futures exchanges.

The Franko case raises the question of whether futures trade surveillance programs ought to include alerts for spoofing across multiple exchanges. FINRA recently explained that cross-product surveillance between stocks and options is now a regular part of its market surveillance program, and that additional actions will be forthcoming. Firms active in multiple related markets would be prudent to add cross-product surveillance into their compliance programs now. (We can help.)

The overseas day trading case marks the end of a remarkable run for Montreal-based Simon Librati. Since 2000, he has run a series of prop trading firms and broker dealers that recruited manual traders in China and other foreign countries to trade US stocks. At his peak in 2012, his traders accounted for as much as 3 billion shares traded a month, or 3% of the entire market.

But his traders included a high number of spoofers. The passage of the 2010 Market Access Rule requiring brokers to more stringently monitor direct market access customers’ order flow, as well as major spoofing enforcement actions against Swift Trade and three other brokers, all directly resulted from spoofing by Librati-sponsored day traders.

With last week’s orders, Librati was fined $400K and suspended for two years, and executing broker World-Xecution Services was permanently barred. There are still other unrelated groups of foreign manual day traders out there, but shutting down Librati’s group is a major milestone. Librati will instead begin trading cryptocurrencies.