The Chicago Mercantile Exchange and the Chicago Board of Trade Business Conduct Committee (respectively, the "CME BCC Panel" and "CBOT BCC Panel") fined and suspended two traders (see here and here) for engaging in disruptive trading activities by entering orders without the intent to trade.
According to the CME BCC Panel, one of the traders, Deepak Patwari, entered orders in the CME Live Cattle markets during the pre-opening period with the purpose of identifying the depth of the order book.
According to the CBOT BCC Panel, the other trader, Kunal Makhijani, entered larger orders on one side of the Soybean Oil futures markets, which he canceled after executing smaller resting orders on the opposite side of the book.
To settle the CME BCC Panel charges, Mr. Patwari agreed to (i) pay a $50,000 fine and (ii) serve a one-year suspension. To settle the CBOT BCC Panel charges, Mr. Makhijani agreed to (i) pay a $45,000 fine and (ii) serve a five-year suspension.
Commentary
Here are two examples of spoofing, one for the apparent purpose of inducing other traders to fill the respondent's order at a noncompetitive price, but the other, according to the Order, "for the purpose of identifying [the] depth of the Order Book." While one can argue that the use of spoof orders in the former case was to obtain a wrongful gain, it is not clear why trying to determine the extent of market liquidity in the latter case is wrong. True, entering and quickly cancelling orders can cause "fluctuations" in the publicly displayed price as the CME claims happened here, but the respondent's actions do raise a legitimate issue regarding the extent to which traders may "test the waters" so as not to get burned on a large order, especially when the Order Book does not reveal how shallow those waters may be.
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