Regulators Examining ‘Wash Trades,’ CFTC’s Chilton SaysMarch 20, 2013
U.S. futures regulators, concerned about the frequency with which high-speed traders engage in banned self-dealing, are examining the practice with an eye toward crafting new rules to prevent it, a top regulator said on Monday.
The examination of so-called wash trades is “in a juvenile stage at this point,” the Commodity Futures Trading Commission’s Bart Chilton told Reuters on the sidelines of the National Grain and Feed Association meeting.
“We are trying to figure out whether it’s going on and why it’s going on,” he said.
In a wash trade, a trading firm improperly sells a contract to itself without taking any risk in the market.
The practice is barred under CFTC and exchange rules because it can create the appearance of an active market where there is none.
The review was prompted by a recent report by CFTC surveillance staff showing a “shocking” level of wash trading across a range of markets, including financial, energy, agricultural and metals contracts, said Chilton, a CFTC commissioner.