Gelber Group LLC, a proprietary trading firm, agreed Feb. 8 to pay $750,000 to settle Commodity Futures Trading Commission allegations it engaged in wash trading--that is, reported trades that it had no intention of executing (In re Gelber Group, CFTC, No. 13-15, 2/8/13).
At the same time, Gelber trading manager Martin Lorenzen agreed to pay $200,000 for allegedly orchestrating the alleged misconduct (In re Lorenzen, CFTC, No. 13-16, 2/8/13).
In settling, Gelber and Lorenzen neither admitted nor denied the allegations, and both agreed to cease and desist from future violations.
Meanwhile, CFTC Commissioner Bart Chilton dissented from the monetary terms of the settlement--specifically Lorenzen's $200,000 fine, which he called “wholly inadequate.”
According to the commission, a Gelber trader reported false orders in the pre-opening session of the Nasdaq E-mini 100 futures contract on the Chicago Mercantile Exchange (CME) from at least August 2009 to February 2010. The commission said the order “were false because they were not intended to be executed and, in fact, were cancelled before the market opened.”
The result was non-bona fide prices displayed as the indicative opening price for the contract. The IOP is the price at which the contract is expected to trade at the opening of trading.
Separately, the CFTC alleged that between at least March 2010 and August 2010, two Gelber proprietary traders engaged in wash sales in certain Russell Index futures contracts at the direction of Lorenzen, their manager. The alleged purpose of the misconduct was to inflate Gelber's trading volumes, enabling it to obtain increased rebates from the IntercontinentalExchange (ICE) as part of an incentive program to trade on the exchange's platform.
According to the CFTC, a Gelber executive asked Lorenzen to select two traders to trade the Russell 1000 contracts and provided them with the specific volumes of contracts they had to trade to make Gelber eligible for the rebates. When they had trouble meeting the desired volume, Lorenzen allegedly told the traders to trade opposite each other to meet the volume.
In his dissent, Chilton said the alleged misconduct “could justifiably lead the public to lose confidence that the prices generated from the market are bona fide and reflect actual market fundamentals.” He added that wash sales are “serious and significant violations of federal law” and are “occurring at an unprecedented rate.”
CFTC Commissioner Jill Sommers issued a statement concurring with Chilton's assessment of the seriousness of the alleged activity and said the commission should have acted against all of the traders involved in the matter.
The order in the Gelber case can be seen at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/gelb(3).pdf. The order in the Lorenzen case can be seen at /uploadedFiles/Content/News/Legal_and_Business/Bloomberg_Law/Legal_Reports/lore(3).pdf.
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