Two UAE traders fined $2.69M by US court for illicit ‘spoofing’ practices

Market regulators in the United States have ordered two residents in the UAE to pay a fine of $2.69 million (Dh9.8 million) over claims that they were “spoofing” the precious metals futures markets in New York.

The order, issued by a federal court in New York and announced by the US Commodity Futures Trading Commission (CFTC) on Tuesday, has prompted questions on whether or not there’s been a growing trend of investors who are out to manipulate the markets to make money.

Spoofing is a dealing strategy that traders use to mislead other market players or manipulate prices. Investors would normally place large orders they intend to cancel later.

A UK-based trader had earlier found himself at the centre of a legal battle for allegedly tricking the futures markets and pocketing £30 million fortune. It was speculated that his acts played a role in the global markets “flash crash” in 2010.

In the recent case, the two UAE residents allegedly entered larger aggregate orders for gold and silver contracts on the Commodity Exchange Inc. (Comex) opposite smaller orders between February 2015 and April 28, 2015.  After the smaller contracts were executed, the large orders were then cancelled.

“The defendants placed the larger orders with the intent to cancel them before execution,” the CFTC said in a statement. The CFTC, which has vowed to go after illegal trading practices, had filed the case with the US District Court for the Southern District of New York in 2015.

“Spoofing undermines public confidence in our markets, and the CFTC will continue to aggressively pursue wrongdoers,” said CFTC director of enforcement Aitan Goelman in a statement.

“The CFTC will protect the US futures markets regardless of where those who engage in illegal spoofing practices are located.”

The federal court order has effectively prohibited the two defendants from trading on the futures markets.”The order also imposes permanent trading and registration bans [on the two traders],” said the CFTC.

The regulatory body, however, expressed thanks to the Securities and Commodities Authority of the UAE and the Dubai Financial Services Authority for helping out in the case.

When contacted by Gulf News, most precious metals analysts and financial advisors in the UAE declined to comment on unfair trading practices.

But according to Rolf Schneebeli, CEO of Gold Services AG, a gold and investments advisory firm in Dubai, authorities may find it difficult to prove manipulative intent.

“The gold futures market is nothing special and you see the same dealing strategies as in all other futures markets. It is difficult to determine if a certain way you place or cancel orders is legitimate or a crime,” Schneebeli said.

“This also changes over time as supervision gets tighter. In general, I would not think there is any increase in dubious transactions due to increased supervision but also as brokers and banks ask for higher margins to cover their risk.”

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