The?Commodity Futures Trading Commission (CFTC) has launched an investigation into ?wash trades in futures contracts by high-speed trading firms. This includes crude oil, precious metals, agricultural commodities, and S&P 500?contracts, reported The Wall Street Journal.?
The review comes after a recent CFTC?surveillance report discovered a “shocking” amount of wash trading across these markets.?
Of particular issue is the concern by regulators of the frequency by high-speed traders in this prohibited self-dealing. It creates the illusion of a competitive market when there isn’t one as firms take both sides of the trade. The practice is currently being reviewed, which is?banned via U.S. futures law; there’s also the potential for the crafting of new rules to prevent the activity.?
On Monday, the CFTC’s Bart Chilton said to Reuters at the National Grain and Feed Association meeting that the current wash trade review is?”in a juvenile stage at this point” and that?”We are trying to figure out whether it’s going on and why it’s going on.”?
Along with its review, the regulator is also investigating?CME Group (NASDAQ:CME Group)?and?IntercontinentalExchange, Inc. (NYSE:ISE). It has expressed?concerns that the exchanges’ systems are neither sophisticated enough to cite nor cease wash trades, reported The Wall Street Journal.?
A CME spokeswoman said to Reuters,?”We actively enforce rules prohibiting wash trading, and we’re in the process of developing technology to prevent wash trades as prohibited by CME and CFTC at the trading-engine level.”
She added the exchange will launch new technology in the middle of 2013.?
As for ICE, a spokeswoman said for years the exchange has utilized “wash-trade filters” and that “we continue to enhance them.”