Regulated markets disapprove of "stealing" and other "fake volume" tactics

Global financial markets have come a long way in the last 10 years, another sign of the interdependence of markets in our modern business environment. These days, investors can easily invest in foreign markets, whereas just a decade ago it was difficult to find a broker with a decent network of counterparties to buy directly on a foreign exchange.

For example, regulators often monitor their markets for signs of abuse and "bad players" trying to manipulate markets or the perception of others about what is happening. In a recent case, the US Commodities Futures Trading Commission (CFTC), after years of such transgressions, reached an agreement with BGC Financial, LP and GFI Securities, LLC, two New York brokers, to pay $24 million in fines for fraudulent forex transactions.

According to our source, "The two companies posted fake offers to buy and sell foreign exchange options on their electronic trading platform, then they communicated these false transactions to clients, in order to get them to make transactions at times and at prices they would not have been able to get otherwise."

In the CFTC press release, Jim McDonald, a Director at the CFTC, says:

Brokers and other intermediaries play a key role in our markets. In addition, we are committed to protecting the integrity of our markets by ensuring that they are held accountable for illegal misconduct.

The CFTC news release then states the intention of these two New York brokerages:

By "flying" prices and "printing" transactions, BGC and GFI wanted to create the illusion of greater liquidity and, in certain circumstances, a tightening of spreads of EFX options on the platform, and an incentive for traders to trade EFX options via the platform at times and prices they would otherwise not have had.

This practice was not an occasional fake here or there or a random quote from time to time. Court documents prove that the brokers were "frequently flagged for in-flight" buy-and-sell "false deals", to encourage traders to engage in meaningful follow-on transactions that would generate more commissions".

In the case of BGC and GFI, the two brokers were also sued to the tune of $12.4 million by other brokers. Brokers were also ordered to improve their internal controls and procedures, to appoint a controller and to stop violating the Commodity Exchange Act and other similar CFTC regulations.