It is believed that the CME (Chicago Mercantile Exchange) has been hit with quite a lot of gold and silver futures contract spoofs by the Bank of Nova Scotia (BNS). The BNS is currently facing charges about this issue from the U.S. CFTC (Commodity Futures Trading Commission). It is hard to believe that such a trusted bank could be facing charges this severe.
According to ForexNewsNow, It is stated in the allegations that the BNS has been involved in this activity for no less than 3 years! It has actually been found by the Order that the illegal activity was operation from the bank’s precious metal trading desk from June 2013 till June 2016. Even though such a rough violation of the CEA’s (Commodity Exchange Act’s) prohibition against spoofing has been the case, BNS was able to get out with roughly little backlash. It will, however, have to pay no less than $800,000 as a civil monetary penalty and have its name always connected to this case, a hard to PR. CFTC was actually notified about the misconduct by the BNS itself, which in-turn was notified of the misconduct by its FCM (Futures Commission Merchant).
CFTC’s Director of Enforcement, James McDonald mentioned that the fact that BNS treated self-reporting very professionally is what created such an easy process of working the issue out. He commends the BNS for setting such a wonderful example of the process. He also adds that even though the main topic should be the complete avoidance of the misconduct altogether, the fact that these companies have the willingness to participate in the discussions and have a quick resolution of the issue is what actually made the CFTC reduce the penalty by a significant amount, therefore giving incentive to others to act in the same way should they find themselves in a similar situation.
What actually happened
The investigations found that the Traders placed the orders on futures contracts for the precious metals. The orders were to sell the product, but cancel the order right before it went through. The BNS will also have to implement a strategy that will basically be a training program. The program will ensure that there will be systems in order to control, detect and stop any kind of spoofing from happening. Alongside the $800,000 penalty, this may send BNS straight to the 7 digit cost margin. This is considered to be a light kind of punishment, considering the self-reporting that the BNS did very professionally.