TFS-ICAP’S CEO Ian Dibb seeks to dismiss CFTC allegations

Maria Nikolova

According to Dibb, the CFTC’s complaint fails to prove collusive or anti-competitive conduct, risk negation, and anti-competitive intent.

TFS-ICAP’s Chief Executive Officer Ian Dibb is seeking to dismiss allegations by the United States Commodity Futures Trading Commission (CFTC) about the company engaging in anti-competitive practices.

In a Letter filed with the New York Southern District Court, Dibb requests that the Court nixes a part of the CFTC complaint against all defendants. In particular, Ian Dibb moves 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”.

Dibb notes that, although the CFTC Complaint refers in two instances to the communication of ”non-bona fide bids and offers” in the context of flying prices, Count III of the Complaint focuses on the alleged practice of printing trades, which is the publishing of trades that did not occur. The Complaint alleges that TFS-ICAP (“TFS”) brokers “entered into and confirmed, or caused the confirmation of, the execution of certain FX options transactions that were fictitious and were used to cause a price to be recorded on Volbroker and communicated to clients that was not a true and bona fide price.”

Non-bona fide prices were allegedly reported when a broker used “one TFS alias to aggress on a price posted under another TFS alias, causing a flash on the traders’ Volbroker screens and signaling to them that a trade had occurred when one had not actually occurred.” Additionally, “non-existent trades also flashed on clients’ Volbroker screens when a trader aggressed on a flown TFS price, behind which there was no actual counterparty.”

Notably, the alleged intent behind printing “was to give clients the impression that there was more liquidity on TFS’s platform than there actually was and to induce traders to transact at times and prices that they would not otherwise have transacted,” Dibb says. Count III of the Complaint relies on a misapplication of Section 4c(a) of the Act, Dibb argues. The Complaint, he says, is devoid of the allegations needed to support a claim under Section 4c(a), specifically, the requisite elements of collusive or anti-competitive conduct, risk negation, and anti-competitive intent.

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. The Complaint contains no allegations of private coordination or collusion within the marketplace let alone outside it. To the contrary, as alleged, prices were posted or “flown” and hit by independent players in the FX options market, acting independently through “open trading,” Dibb says. The conduct alleged has none of the features of a prearranged trade or wash sale, where price and quantity are privately fixed by colluding actors outside the reach of market participants, he argues.

Further, the defendant insists that the Complaint fails to allege that printing trades negated ”risk or price competition incident” to the FX options market. According to him, the Complaint contains no allegation that flown prices or printed trades dampened the forces of supply and demand, or permitted TFS to “evade the competition of the open market.”

“To the contrary, flown prices and printed trades had the effect of sparking market interest and fueling market activity, which resulted in more competition”, Ian Dibb says.

Also, according to Dibb, the Complaint fails to allege that TFS’s brokers had the intent “to negate risk or price competition and avoid a bona fide market position”. To the contrary, he says, the Complaint merely alleges that TFS’ s brokers attempted to create the appearance of liquidity to facilitate even more competitive trading to fulfil their mandate as brokers.

Dibb argues that the deficiencies in the Complaint appear to be, in part, a result of the CFTC’s attempt to extend to brokers a theory of liability that has so far been applied only to those trading on a proprietary basis. Section. 4c(a)(l), he says, was designed to constrain traders acting in an anticompetitive manner, “not brokers, who take no economic position at all and simply earn money on commissions”.

Let’s recall that, in November, Judge Victor Marrero of the New York Southern District Court issued an order denying the motion to dismiss filed by another of the defendants in this action – Jeremy Woolfenden.

The CFTC should reply to Dibb’s arguments not later than December 6, 2019, the Judge ordered on December 2, 2019.

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