It has long been an American tradition that “all which is not forbidden is allowed.” While I am not in favor of the described “spoofing” activities, I see nothing but political score making behind the actions of CFTC since the latter is not going after but
is making a showcase out of the consequences of the problem.
Let’s try to make maximal sense out of what the crux of the issue appears
to be based on the description provided in the material:
The allegation is that “by placing the large buy orders, Coscia and Panther sought to give the market the impression that there was significant buying interest, which suggested that prices would soon rise, raising the likelihood that other market participants
would buy from the small order Coscia and Panther were then offering to sell.”
While I can see how such behavior may be disruptive, clearly the fact that
this type of behavior is actionable points at either a loophole in the order
matching rules of CME's Globex platform or a technical deficiency and here is
When one counterparty sends sell and buy orders on the same asset which overlap over some duration, however minuscule, the Exchange should match these orders against each other, net them out, thereby execute the buy order against the sell order of the same
counterparty and force him pay the Exchange transaction fees twice – regardless if the order type of one of the legs of transaction prohibits partial filling if either of the orders originating from the same counterparty.
Guess how long under such circumstances one may want to spoof the market...
So why instead of going after Panther CFTC is not going after CME?
I think if anyone CFTC needs to penalize CME which will force the latter to prevent spoofing loopholes.
If this is not a loophole on the rules and regulations level but is resulted from the high latency in the CME GlobEx platform order matching engine then through penalization CFTC needs to force CME to reduce the order matching latency or increase the minimal
lifespan of an order so that it is in par with the order matching engin latency since clearly the sell order in the contested case has been pending while large buy orders have been placed. So, both sides of the orders have been alive for some time – no matter
If both sides of the order have not overlapped in terms of their lifespan the described action should not be considered to be illegal and should still be regulated by the exchange and instrument tick-size rules.