HFT Firm Charged By CFTC For ‘Banging The Close’ In Rate Swaps

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HFT Firm Charged By CFTC For ‘Banging The Close’ In Rate Swaps

This article first appeared on Floating Path

High frequency trading (HFT) firm DRW Investments was formally charged this week by the U.S. Commodity Futures Trading Commission based on manipulative practices in the IDEX USD Three-Month Interest Rate Swap Futures Contract which allegedly netted them a profit of over $20 million.

According to the CFTC, the final closing price of the product is at times determined solely by bids during a 15 minute “settlement window.” During this window, on 118 days, DRW placed multiple erroneous bids in order to artificially inflate the price of the contracts. Not a single bid resulted in a trade as DRW cancelled them before they could be executed. They are said to have owned a large position with a notional value of $350 million.

This practice is similar to quote spam and spoofing which we routinely highlight in the equity and futures markets.

“Traders cannot engage in manipulative acts to affect the price of futures contracts to achieve their desired profits, regardless of the so-called motive. Today’s action demonstrates that the Commission will vigorously prosecute such cases to protect the integrity of the markets.”

It’s worth noting that DRW Investments is also suing the CFTC according to fxstreet.com.

DRW and Wilson, who also heads a lobby group for some of the top high-frequency trading firms, sued the U.S. swaps regulator in September to prevent it from bringing what they called an “unfounded” case.

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