FX Options Markets Fraud: Interdealer Brokers Ordered by CFTC to Pay $25 Million

The U.S. Commodity Futures Trading Commission announced in Washington D.C. last week that the agency issues orders to file and settle charges against two interdealer brokers: BGC Financial, LP and GFI Securities, LLC.

The orders, entered on September 30, 2019, find that the brokers employed by BGC and GFI on their respective emerging markets foreign exchange options (EFX options) desks made false representations that certain bids and offers were executable. They also falsely claimed, according to the orders, that certain trades had occurred. 

The respective orders find that BGC and GFI brokers posted bids and offers on their company’s electronic platform for EFX options when, in fact, no trading institution had bid or offered the option at the given level.

The respective CFTC orders require BGC to pay a civil monetary penalty of $15 million and GFI to pay a civil monetary penalty of $10 million. The orders also require BGC and GFI to improve their internal procedures and to provide for the appointment of a monitor. The orders also require that each of the companies cease and desist from violating the Commodity Exchange Act and CFTC regulations, as charged. 

In addition, the orders find that BGC and GFI brokers informed their clients about trades that were, in fact, fake. The orders further find that when a fake bid or offer was hit or lifted on the platform, the screen would flash, indicating that a trade had occurred when, in fact, it had not occurred. According to the CFTC, these false practices potentially deceived clients who were using the screen to convince them that an actual trade had occurred.

The intention of such markets fraud practices by BGC and GFI brokers was to create the illusion of greater liquidity and, in some circumstances, tighter spreads in EFX options on the platform. The intention was also to convince clients to participate in transactions in EFX options via the platform during times and at prices for which they otherwise thought they might not have access.

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