The regulator argues that brokers at TFS-ICAP routinely reported fake, non-bona fide FX Options transactions on TFS-ICAP’s electronic trading platform.
The action brought by the Commodity Futures Trading Commission (CFTC) against TFS-ICAP, the Chief Executive Officer, Ian Dibb, and the Head of Emerging Markets broking, Jeremy Woolfenden, continues at the New York Southern District Court. Earlier today, the Court has made available the CFTC response to Dibb’s arguments against the complaint.
Let’s recall that, according to the CFTC Complaint, from approximately 2008 through 2015, brokers at TFS-ICAP offices in the United States and the United Kingdom attempted to deceive and deceived their clients by engaging in the practices of communicating to them fake bids and offers and fake trades in the foreign exchange options market. The CFTC Complaint alleges that the practices, known as “flying prices” and “printing trades”, were a core part of TFS-ICAP’s broking business.
In his response to the complaint, Dibb asked the Court to dismiss with prejudice Count III of the Complaint, which, according to him, relies on a misapplication of Section 4( c )( a) of the Commodity Exchange Act, which proscribes anti-competitive efforts to generate “fictitious sales” or record prices that are not bona-fide.
In relevant part, Section 4c(a) of the Act renders it unlawful to “offer to enter into, enter into, or confirm the execution of a transaction” that is “a fictitious sale; or [that] is used to cause any price to be reported, registered, or recorded that is not a true and bona fide price”.
In its response, the CFTC argues that its Complaint alleges precisely this type of activity. It alleges that brokers at TFS-ICAP routinely reported fake, non-bona fide FX Options transactions on TFS-ICAP’s electronic trading platform. Specifically, the Complaint alleges that, among other things, TFS-ICAP brokers used TFS “aliases” to match bids and offers on the platform to make it appear to clients that trades had occurred at particular prices (or “levels”) when such trades had not actually occurred. Moreover, the Complaint alleges that TFS-ICAP also flashed fake trades when a trader aggressed upon a flown TFS price, behind which there was no actual counterparty.
Dibb argues that the Complaint fails to allege pre-arrangement or private, collusive, or anti-competitive activity on the part of TFS’s brokers. Indeed, it alleges that TFS was acting on its own, not in coordination with any competitor.
According to the CFTC, there is no indication that Congress intended only to prohibit collusive conduct between two parties. Indeed, according to the regulator, such a narrow reading would lead to an absurd result: it would be illegal for two parties working together to cause traders to believe that a bona fide, open-market transaction had occurred when it had not; and completely legal for a single party, acting alone, to cause the market to believe the same thing.
Finally, the Commission notes that Dibb admits that TFS-ICAP brokers “took no proprietary positions” in the open market and thus were not subject to any market risk. Therefore, by definition, TFS-ICAP brokers’ scheme involved posting fake prices with the “intent” to avoid a market position, the CFTC explains. Hence, even assuming that a violation of Section 4c(a) requires intent to avoid a bona fide market position, such a prong has been satisfied in this case.