Chicago trading firm accused of profiting from ‘spoofing ’

A Chicago trading firm was charged Monday with profiting from alleged manipulation of futures markets through the improper practice known as spoofing.

The Commodity Futures Trading Commission accused Chicago-based 3 Red Trading LLC and its CEO and principal trader Igor Oystacher with using spoofing schemes between December 2011 and January 2014 in trading futures contracts on the Chicago Mercantile Exchange, the New York Mercantile Exchange, the Commodity Exchange and the CBOE Futures Exchange.

The alleged spoofing, in transactions involving crude oil, natural gas, copper and other futures contracts, enabled Oystacher and his company to buy and sell “at price levels that would not have otherwise been available to them,” the CFTC charged.

“Spoofing seriously threatens the integrity and stability of futures markets because it discourages legitimate market participants from trading,” Aitan Goelman, the CFTC’s enforcement director, said in a statement announcing the allegations.

Filed in federal court in Chicago, the civil action seeks monetary penalties, as well as trading and registration bans.

Oystacher and his firm characterized the allegations as “completely without merit.”

“The CFTC has over-simplified complex trading and is now trying to classify legitimate trading and risk management as a market infraction,” the defendants said in a formal statement. “We stand behind the trading at issue as it does not contradict available guidance nor violate the law.”

The suit alleges that Oystacher and his firm placed large passive orders on one side of the market at or near the best bid or offer price for various futures contracts. These were “spoof ” orders because the defendants intended to cancel them before they were executed, the CFTC said.