Nadex takes action against two members over “spread squeeze”
Effective February 12, 2018, Allen Epstein and Matthew Harford are suspended from engaging in trading activity for 5 and 12 days, respectively.
North American Derivatives Exchange (Nadex), a subsidiary of IG Group Holdings plc (LON:IGG), has issued notices concerning two of its Members – Allen Epstein and Matthew Harford. Both were found to have violated Nadex Rule 5.19 by engaging in a practice known as “spread squeeze”.
To accomplish the Spread Squeeze, the Members would place successively higher bids and lower offers for one lot within the existing bid/ask spread, in an attempt to squeeze the market in a particular direction. Their orders would then entice other market participants to better the prices. After the price moved in the desired direction, Mr Epstein and Mr Harford would place a larger order on the opposite side of the market. When the large order executed, they would cancel the original resting order(s) that were used to move the market.
During its investigation, Nadex found that Epstein had engaged in several instances of such conduct in the Nadex EUR/USD, USD/CAD, and GBP/USD markets, in each instance using a small quantity order to better the bid or offer price for the order he intended to execute on the opposite side of the book.
Nadex found that Harford had engaged in several instances of such conduct in the Nadex US 500 and Gold markets, in each instance using a small quantity order to better the bid or offer price for the order he intended to execute on the opposite side of the book.
In both cases, Nadex determined that the Members had entered orders which they did not intend to execute, but rather for the purpose of artificially moving the market in the direction they favored, Nadex ruled that this activity constituted “spoofing”, and therefore is in violation of Nadex Rule 5.19(w). Additionally, because Epstein’s and Harford’s activity presented a risk that other market participants might enter a transaction with them at an artificial price, Nadex concluded that they violated Nadex Rules 5.19(h) and 5.19(t).
RULE 5.19 concerns prohibited transactions and activities. In particular, it states:
- (h) No Person shall engage in any activity that presents a risk of harm to Nadex, its Members, or the public.
- (t) No Member shall engage in conduct or practices inconsistent with just and equitable principles of trade or conduct or practices detrimental to the best interests of the Exchange, its Members and/or FCM Customers.
- (w) No Person shall engage in any activity that constitutes fraudulent or abusive trading, including but not limited to violating bids or offers; demonstrating intentional or reckless disregard for the orderly execution of transactions during the closing period; or spoofing.
As a result of his activity, Epstein was suspended from engaging in trading activity for a five day period, and was fined $1,000. Harford was suspended from engaging in trading activity for a twelve day period, and was fined $500.
