US Watchdog CFTC Slams $720k Fine on 2 Chinese Firms for Wash Trading

Mar 30, 2023

The companies were charged with position limit violations and reporting failures.

The violations occurred between April 22 and May 1, 2020.

The Commodity Futures Trading Commission (CFTC), the US derivatives industry regulator, has slammed a fine of $720,000 on Chinese companies COFCO Corporation and Chinatex Corporation Limited.

The fine is to settle charges of wash trading, position limit violations and reporting failures instituted by the regulatory body against the companies.

On Friday, CFTC said it issued an order simultaneously filing and settling the charges against the firms.

“The order finds that between April 22 and May 1, 2020, Chinatex traders engaged in wash trading in order to liquidate a long position in the account of an affiliated company and re-establish the position in its own account, to the ultimate benefit of its parent company, COFCO,” the regulator explained in a statement.

CFTC’s order asked the firms to “desist from violating the Commodity Exchange Act and CFTC regulations, as charged.”

More on the Case

Explaining how the wash trading took place, the CFTC noted that Chinatex traders entered purchase orders for Intercontinental Exchange (ICE) Cotton No. 2 futures in their accounts.

Additionally, they simultaneously entered offsetting sale orders in the account of an affiliate, the watchdog said.

“The offsetting orders were for the same delivery month, and at prices that were typically within one price tick of each other. The traders structured the orders to ensure that one set of offsetting orders were filled before entering the next set," CFTC explained.

It added, “The orders were not intended to take a bona fide position in the market, but rather to liquidate and re-establish a position while minimizing risk and price competition.”

In the issued order, the CFTC said it found COFCO guilty of violating the rules on speculative position limit while it was trading the ICE Cotton No. 2 futures contracts.

The regulator explained: “According to the order, in March 2020, various aggregated subsidiaries of COFCO held net short positions in excess of the 5,000-contract single- and all-month position limits then applicable.

“Similarly, in November 2021, several subsidiaries of COFCO held net short positions in excess of the 5,950-contract single-month position limit then applicable. Also, the subsidiaries failed to file certain required reports accurately reflecting their cash-market exposure.”

Similar Action

According to the CFTC, on July 20, ICE Futures US, a marketplace for futures and options trading, settled a disciplinary action against Chinatex and an affiliate for trade practice violations.

The disciplinary action covered the firm and affiliate’s conduct that was said to have been detrimental to the exchange.

Additionally, it covered their unauthorized use of trader identification information, position limit violations, misuse of a hedge exemption, and supervisory failure.