Better surveillance needed to beat spoofing, argues regtech exec

Juan Diego Martin, COO of Fonetic

Following news that the Commodity Futures Trading Commission (CFTC) could fine Citigroup $1.2 million after complaints from the Japanese authorities, a regtech expert has called for better surveillance of trades.

The market regulator in Japan has recommended that a penalty be handed to the US investment bank following alleged spoofing activity in the country’s futures market.

“Without linking orders and communications, it can take months for financial institutions and regulators to find evidence of spoofing in the futures markets,” argued Juan Diego Martin, COO of regtech firm Fonetic. “An obvious spoofing case is communications asking to buy, but the trader first introduces orders to sell – in order to manipulate the market – then to buy, before then removing the sell order and letting the buy being executed at a lower price.”

Typically, he said, this type of spoofing can be detected through trade surveillance systems: “Communication surveillance, in tandem with order reconstruction technology, can figure out if there are related communications regarding these orders and the sequence taking place,” he concluded.

“Spoofing is a significant threat to market integrity that the CFTC will continue to vigorously investigate and prosecute,” warned CFTC Director of Enforcement Aitan Goelman. “Additionally, registrants with supervisory responsibilities must provide their employees with sufficient training and have in place adequate systems and controls to detect spoofing. Failure to do so will have significant consequences.”

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