CFTC settles charges against BGC Financial and GFI Securities over FX options market fraud
The orders impose a penalty of $15 million on BGC and a penalty of $10 million on GFI.
The United States Commodity Futures Trading Commission (CFTC) has announced the issuance of orders filing and simultaneously settling charges against BGC Financial, LP and GFI Securities, LLC.
The orders find that brokers employed by BGC and GFI on their respective emerging markets foreign exchange options desks made false representations that certain bids and offers were executable and that certain trades had occurred.
The respective orders impose a $15 million penalty on BGC and a penalty of $10 million on GFI. They also require each of the companies to enhance their internal controls and procedures, to appoint a monitor, and to cease and desist from violating the Commodity Exchange Act and CFTC regulations.
The 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 that level – a practice referred to by the brokers as “flying.” The orders further find that BGC and GFI brokers communicated fake trades to their respective clients – a practice they referred to as “printing” a trade. In addition, when a “flown” 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 – thus potentially deceiving all clients using the screen into believing an actual trade had occurred.
By “flying prices” and “printing trades,” BGC and GFI brokers intended to create an illusion of greater liquidity and, in some circumstances, tighter spreads in EFX options on the platform and induce clients to transact in EFX options via the platform at times and prices at which they otherwise might not have.
In a separate action against the two brokers, New York Attorney General Letitia James announced today that BGC and GFI have agreed to pay penalties totaling $12.5 million dollars to the Attorney General’s Office for their violations of the Martin Act. Both companies admitted that between January 1, 2014 and December 31, 2015, brokers of FX options for emerging market currencies employed fraudulent practices to solicit and accept orders from New York traders to buy and sell FX options. Under the agreements, both brokerages will have to immediately implement remedial procedures, verified by an independent monitor who will report to the Attorney General’s Office.