CFTC reaches settlement with TeraExchange over bitcoin wash trading

The U.S. Commodity Futures Trading Commission (CFTC) settled its charges against TeraExchange LLC (Tera), a New Jersey-based provisionally registered Swap Execution Facility (SEF), for failing to prohibit wash trading and prearranged trading on the SEF platform. 

The regulator found that Tera offered a non-deliverable forward contract based on the relative value of the U.S. Dollar and Bitcoin (the Bitcoin Swap) for trading on its SEF.  Tera arranged for the two market participants to enter into the transactions, telling one that the trade would be “to test the pipes by doing a round-trip trade with the same price in, same price out, (i.e. no P/L [profit/loss] consequences) no custodian required,” according to the Order.

However, following the transactions, Tera created an impression of actual trading interest in the Bitcoin swap, as it issued a press release and made statements at a meeting of the CFTC’s Global Markets Advisory Committee (GMAC) announcing the transactions.  Neither Tera’s press release nor the statements at the GMAC meeting indicated that the said transactions were pre-arranged wash sales executed for the purpose of testing Tera’s systems.

The CFTC noted in the Order 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.”

The CFTC issued an order that requires Tera to cease and desist from future violations relating to its obligations to enforce rules on trade practices.