The U.S. Commodity Futures Trading Commission (CFTC) issued an order on Thursday settling charges against TeraExchange LLC, which is provisionally registered as a swap execution facility (SEF). The order finds that the exchange failed to enforce its prohibition on wash trading and pre-arranged trading in Bitcoin swaps when it arranged an offsetting trade “to test the pipes.”
At the time, these were the only transactions on TeraExchange’s SEF. Yet, the CFTC says that after the trades, TeraExchange issued a press release and made statements at a meeting of the CFTC’s global markets advisory committee announcing the transactions and “creating the impression of actual trading interest in the Bitcoin swap.”
The CFTC order notes that “[t]hese facts should be distinguished from a situation where a SEF or other designated contract market runs pre-operational test trades to confirm that its systems are technically capable of executing transactions and, to the extent that these simulated transactions become publicly known, makes it clear to the public that the trades do not represent actual liquidity in the subject market.”
Under the settlement, TeraExchange is required to cease and desist from future violations of its obligations to enforce rules on trade practices.
“Fictitious trading deserves a penalty,” says CFTC commissioner Sharon Bowen in a statement dissenting from the deal following the settlement. “TeraExchange Exchange facilitated wash trading and pre-arranged trading in violation of the Commodity Exchange Act. That is why we brought this case. I fundamentally disagree with the notion that they deserve no penalty.”