The U.S. Commodity Futures Trading Commission issued an Order filing and settling charges against SMP Bank (SMP), headquartered in Moscow, Russia, and Epaster Investments, Ltd. (Epaster), an investment company located in Nicosia, Cyprus, for engaging in wash sales and causing the execution of non-competitive pre-arranged trades in the Japanese Yen options contract traded on the Chicago Mercantile Exchange (CME).
The CFTC Order requires SMP and Epaster to pay civil monetary penalties of $700,000 and $280,000 respectively, and to cease and desist from violating the Commodity Exchange Act and CFTC regulations governing wash sales and non-competitive pre-arranged trading, as charged.
The CFTC Order finds that on three occasions SMP traded with itself in the March 2012 Japanese Yen options contract listed on the CME, and that SMP and Epaster were on opposite sides of two additional trades in same contract.
The CFTC’s Order finds that SMP intentionally negated price competition in each of these trades, as follows. The same SMP employees controlled SMP’s and Epaster’s trading accounts. Each of the orders in question was equal and offsetting in size and price, and was initiated at or near the same time. The orders were entered and the trades executed in an illiquid market at prices higher than any bids and offers in the market at the time. As a result, the SMP employees knew when placing the relevant orders that another SMP or Epaster account would be the counterparty to the ensuing transaction. Moreover, SMP knew that these transactions were riskless and further that each of the three transactions SMP executed with itself resulted in a financial nullity and therefore achieved a wash result.
According to David Meister, the Director of the CFTC’s Enforcement Division, “The Commission will not tolerate wash sales or other riskless trading schemes. Such schemes undermine the integrity of futures and options markets. Today’s Order is a message to traders of the serious consequences that will result from such violations.”