In a court order that is of interest to all exchange-facing wealth management firms, the US Commodity Futures Trading Commission has alleged that between December 2014 and April 2016 Daewoo Securities Co Ltd took part in 'spoofing' (bidding or offering with the intent to cancel the bid or offer before execution). The South Korean brokerage has wisely decided to settle charges.

In anticipation of the institution of an administrative proceeding, Mirae has submitted an Offer of Settlement which the CFTC has decided to accept. The brokerage does not confirm or deny the allegations but promises to co-operate fully with the regualtor in future.

A trader who worked for Daewoo Securities, which Mirae later acquired, engaged in the disruptive trading practice of 'spoofing' in the E-mini S&P 500 Index futures contract traded on the Chicago Mercantile Exchange. This disruptive trading contravened section 4c(a)(5)(C) of the Commodity Exchange Act, 7 USC s6c(a)(5)(C) (2012).

One strategy that the trader employed involved three steps. First, he entered one or more disproportionally large orders (orders that he intended to cancel) on one side of the market. He placed the order(s) with the intention of giving a misleading impression of market depth and inducing other market participants to trade opposite it/them. Second, capitalising on the spurt in buying or selling interest that the order(s) created, he placed a small order (one that he actually intended to execute) on the opposite side of the market. Lastly, within seconds of that, he cancelled the original order before it was filled.

It is interesting to note that when a financial firm reaches a settlement of this kind, it waives: (i) the filing and service of a complaint and notice of hearing; (ii) a hearing; (iii) all post-hearing procedures; (iv) judicial review by any court; (v) any objections to the participation by any member of the CFTC's staff in the CFTC's consideration of the offer; any claims that it might make under the Equal Access to Justice Act or the Small Business Regulatory Enforcement Fairness Act 1996; and any claims of double jeopardy that it might base upon the deal.