CFTC secures Court order against Slovakian trader accused of spoofing
The United States Commodity Futures Trading Commission (CFTC) has secured a Court order against Roman Banoczay, Jr., Roman Banoczay, Sr., and their BAZUR spol. S.R.O. The defendants stand accused of spoofing and engaging in a manipulative and deceptive scheme in the crude oil futures markets.
On December 7, 2021, the Honorable Gary Feinerman of the Illinois Northern District Court signed a consent order for permanent injunction against the defendants.
Let’s recall that the CFTC launched this action back in September 2020.
Defendant Roman Banoczay, Jr. is a resident of Bratislava, Slovakia and is Senior’s son. Junior has never been registered with the Commission in any capacity. Junior directed the trading of commodity futures through accounts held by Senior and BAZUR. Junior was authorized to do so by Senior and BAZUR.
From approximately October 31, 2013, through April 19, 2018, Senior held trading accounts at a futures commission merchant that is headquartered in Greenwich, Connecticut. These accounts included a primary account in the name of Senior, and two sub-accounts, one in the name of Senior and another in the name of BAZUR.
Junior entered orders and executed trades through the Futures Trading Accounts, and was the only person who did so. Junior traded manually, by submitting orders, cancelations, and modifications using a computer mouse or keyboard. Junior traded in the Futures Trading Accounts on his own behalf, and on behalf of Senior and BAZUR. Senior and BAZUR authorized and were aware of Junior’s trading. Junior was an agent of both BAZUR and Senior, and all of his trading in the Futures Trading Accounts was conducted within the scope of and in furtherance of that agency.
From January 16, 2018 through February 12, 2018, Junior engaged in a manipulative and deceptive scheme that consisted of spoofing the crude oil futures market on CME’s Globex electronic trading platform. When he engaged in the Scheme, Junior knew or was reckless to the fact that his spoof orders would send false signals of increased supply or demand (i.e., increased selling or buying interest) into the market and would deceive or trick other market participants.
Junior’s turn to spoofing came amid a string of significant trading losses that he incurred in January 2018. Specifically, he lost more than $289,000 on January 10, more than $624,000 on January 24, and more than $87,000 on January 26.
In the face of these losses, Junior started implementing and refining a spoofing strategy. Junior began to spoof on January 16, and from that point through the end of that month, he engaged in between seven and seventy-seven spoofing events each day.
Junior often spoofed into and out of corresponding positions in the market—in other words, in several instances Junior bought a long position in the market through spoofing, and then offset that long position by spoofing to sell a corresponding short position. This behavior earned Junior a profit based on the difference in price between his buy and sell.
In early February, Junior’s spoofing accelerated. By February 2, he started spoofing consistently and increasingly, executing seventy-six to 340 spoofing events per day until February 12, when he engaged in more than 700 spoofing events in a single day. After that, his futures commission merchant put a hold on his account.
During the Relevant Period, Junior engaged in approximately 2,000 distinct spoofing events. These 2,000 events encompassed more than 19,000 individual spoof orders.
Junior’s sudden and substantial reliance on spoofing was successful in helping to offset his earlier trading losses. For example, during his most intense spate of spoofing, from February 2 through February 12, he earned more than $332,000 in profits over just eight days of trading.
Junior’s Scheme followed a general pattern:
- placing a small order (between one and forty lots) for Crude Oil futures that he intended to execute (“Genuine Orders”);
- within seconds before or after entering a Genuine Order, placing a series of much larger resting orders (more than 95% of which were forty lots each) in rapid succession at various price levels on the opposite side of the market, which he intended to cancel before execution (“Layered Spoof Orders”); and
- canceling his Layered Spoof Orders within seconds of his Genuine Order being filled.
Junior’s Scheme was designed to benefit financially from market participants’ reaction to his Layered Spoof Orders.
Virtually all of Junior’s more than 19,000 individual Layered Spoof Orders— encompassed within the approximately 2,000 distinct spoofing events—were canceled immediately before or after a fill of a Genuine Order. The predictable sequence inherent in Junior’s spoofing pattern, repeated over and over in a span of just 27 days, demonstrates that Junior was not reacting to market changes when he canceled his Layered Spoof Orders; rather, he was carrying out a predetermined strategy that was not dependent on market conditions.
Under the consent order entered by the Court, the defendants are permanently restrained, enjoined and prohibited from (inter alia) engaging in any trading, practice, or conduct on or subject to the rules of a registered entity that is, is of the character of, or is commonly known to the trade as, “spoofing”. They are also prohibited from using or employing, or attempting to use or employ, manipulative devices, schemes, or artifices to defraud.
In addition, the defendants are restrained, enjoined and prohibited, for a period of two years from the date of entry of the Consent Order, from trading on or subject to the rules of any registered entity.
Finally, Junior will have to pay a civil monetary penalty in the amount of $750,000.