” King of stock” manipulates U.S. stock index for two years to hit 10% of the market’s trading volume

On November 7th the US Department of Justice and the Commodity Futures Trading Commission (CFTC) issued a notice saying that Tower Research Capital, a high-frequency trading company, had agreed to pay $67.49 million to settle allegations that three of its former traders engaged in “pending fraud.” It is by far the largest fine ever issued by US regulators for such conduct. The fine includes $32.59 million in damages, $10.5 million in illegal gains and $24.4 million in civil penalties.

The allegation of “pending bill fraud”, or “frequent withdrawal” in the country, is an internationally known “spoofing” transaction. In real trading operations, speculators may use high-frequency trading to make frequent statements, withdraw orders, and create ghost liquidity to attract other investors to “hook up”. This behavior has the possibility of inducing a deal and thus manipulating the futures price.

According to the complaint, the three traders made thousands of orders to buy and sell futures contracts and cancelled them before closing in order to influence prices by pending orders, induce other investors to buy (sell) and take the opportunity to profit from them. These acts continued from at least March 2012 to December 2013.

Notably, three former traders at the high-frequency trading company included Bruce Mao, a fugitive Chinese trader. The U.S. Justice Department did not give an update on Bruce Mao, a 40-year-old Chinese trader, after media reports that Bruce Mao left the Country in 2015 and returned home.

Since 2012, Tower Research Capital, driven by a high-frequency trading team led by Bruce Mao, has been the most active trader in the U.S. stock index futures market, particularly in 2013, with a total group volume of 28 million individuals. It accounts for 10% of the total annual trading volume of the Standard and Poor’s futures products, making it a veritable “NO.1”.

$67.49 million! The biggest fine ever.

On November 7, 2019, the U.S. Department of Justice and the Commodity Futures Trading Commission (CFTC) issued a notice that Tower Research Capital, a high-frequency trading company, had agreed to sign a deferred prosecution agreement (DPA) to pay $67.49 million to settle a settlement for three of its former traders. The allegations of pending fraud are limited to the company level.

In accordance with DPA’s terms, Tower agreed to strengthen internal management, conduct appropriate reviews of policies and procedures, modify its compliance program as necessary, and invest heavily in complex transaction instrument monitoring, increase legal and compliance checks, restructure the company’s senior management, and improve its governance structure.

Previously, in November 2018, the U.S. Department of Justice indicted three Tower futures traders, including a Chinese citizen. They are accused of orchestrating the manipulation of stock futures contracts, resulting in losses of more than $60 million to the companies with which they traded.

From around March 2012 to Around March 2014, Mao and two assistants traded on the Chicago Mercantile Exchange (CME) on the E-mini S.P. 500 index futures and e-mini NASDAQ 100 index futures. And during trading on the Chicago Board of Trade (CBOT), the E-mini Dow Jones futures market was used to trick buyers by placing thousands of fake orders, in an attempt to create the illusion of increased supply and demand. The orders distort market prices, resulting in losses of more than $60million to counterparties.

One of the suspects is 39-year-old Yuchun Bruce Mao, according to documents released by the Justice Department in 2018. He holds Chinese nationality and has been charged with one count of commodity trading fraud and two counts of false under wire. The other suspect is 36-year-old Kamaldeep Gandhi, from Chicago. Gandhi was charged with two counts of conspiracy to engage in wire fraud, commodity trading fraud and pretence fraud. Another suspect is 33-year-old Krishna Mohan, from New York. Mohan was charged with the same charges as Gandhi.

In November 2018, two of the alleged suspects, Gandhi and Mohan, have pleaded guilty. A final decision is scheduled for February 2020. Under U.S. sentencing guidelines, each charge of pretence fraud carries a maximum penalty of 10 years in prison and a $1 million fine.

2013 U.S. stock index futures market, “China’s king”, trading volume accounted for 1/10

The U.S. Justice Department did not give an update on Bruce Mao, a 40-year-old Chinese trader, after media reports that Bruce Mao left the Country in 2015 and returned home.

On social media, LinkedIn linkedIn, there is also bruce Mao, also known as Bruce Mao. The profile also involves the same company. According to the introduction, Bruce Mao has worked for Tower Research Capital, a well-known high-frequency trading company in Chicago, since 2011 and has previously worked for two other well-known high-frequency trading companies, Harrison Trading and Jump Trading. He graduated from Peking University in 2001 with an undergraduate degree in chemistry and graduated from the Department of Financial Engineering at the University of Michigan in 2005.

Since 2012, Tower Research Capital, driven by a high-frequency trading team led by Bruce Mao, has been the most active trader in the U.S. stock index futures market, particularly in 2013, with a total group volume of 28 million individuals. It accounts for 10% of the total annual trading volume of the Standard and Poor’s futures products, making it a veritable “NO.1”.

Prior to the case, in August 2018, the CME had given Bruce Mao a record fine, banned from trading for two years and fined him $120,000. However, the case was then transferred to the U.S. Department of Justice, which began formal charges in October 2018.

It is worth noting that after the case broke out last year, it was reported that Bruce Mao’s profile was in line with the founder’s resume provided on Zhejiang Ancheng’s online website. According to the company, Ancheng is a quantitative hedge fund set up in March 2015. The company did not respond to a request for comment.

High-frequency market manipulation occurs from time to time

In recent years, the U.S. Department of Justice has made frequent allegations of market manipulation in high-frequency trading. Pretence fraud refers to the act of false quotation and withdrawal in market transactions, which is essentially to manipulate the market. Pretend fraud can have many negative effects, and the effectiveness of the market will be seriously undermined.

The “flash crash” in U.S. stocks on May 6, 2010 was the most famous case of “pretence-spoofing”, causing the Dow Jones Industrial Average to plummet nearly a thousand points in an instant and the value of the U.S. stock market to evaporate nearly trillions of dollars. Five years later, Sarao, a 36-year-old British high-frequency trader, was accused by the US Department of Justice of “pretending to cheat” to allow himself to buy Tully at a low price, using automated procedures to set up a large number of index futures and then cancel trading after pushing down prices. The U.S. government asked for Sarao’s extradition, but that required British cooperation, and as a result, Sarao, who is in the UK, remains at large.

On November 3, 2015, a trial in the U.S. District Court for the Northern District of Illinois found Michael Coscia guilty of market manipulation by conducting a pretence of fraudulent trading through a high-frequency trading process. In less than three months in 2011, Coscia made an illegal profit of nearly $1.4 million in a cover-up of multiple commodity futures contracts.

The Coscia case is the first criminal prosecution and conviction in the United States since the passage of the Dodd-Frank Act in 2010 in a case involving high-frequency trading. Under U.S. sentencing guidelines, each charge of pretence fraud carries a maximum penalty of 10 years in prison and a $1 million fine.

On September 20, 2018, the Commodity Futures Trading Commission (CFTC) announced a $1.5 million fine for Geneva Trading USA, llC, a Chicago-based proprietary trading company, for “spoof” transactions by its employees.

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