The US Commodity Futures Trading Commission (CFTC) has settled charges it filed today against New Jersey-based bitcoin swap execution facility (SEF) TeraExchange.
The charges stem from a non-deliverable forward contract executed on 8th October on TeraExchange, which is provisionally registered as a SEF. The transaction took place under the active guidance of TeraExchange, without any associated trading fees or collateral requirements, the agency said.
According to the CFTC, these actions constitute wash trading and prearranged trading in violation of the Commodity Exchange Act.
The agency defines wash trading as the act of “entering into, or purporting to enter into, transactions to give the appearance that purchases and sales have been made, without incurring market risk or changing the trader’s market position”.
Prearranged trading constitutes an act of “trading between brokers in accordance with an expressed or implied agreement or understanding”, according to the CFTC.
Press materials from the time indicate that one of the parties was Australian bitcoin mining firm DigitalBTC, whereas the other was an unidentified “hedging counterparty”.
The exchange facilitated the prearranged transaction and then went on to “[create] the impression of actual trading interest in the bitcoin swap” in a 9th October press release,” according to the CFTC.
“Neither Tera’s press release nor the statements at the Global Markets Advisory Committee (GMAC) meeting indicated that the October 8 transactions were pre-arranged wash sales executed for the purpose of testing Tera’s systems,” the agency said in a press release.
This, the agency said, was different from a situation in which an exchange would openly declare that it was testing its systems, stating in its order:
“These 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 has ordered TeraExchange to refrain from further violations of the Commodity Exchange Act. No monetary penalty was levied against the company.
The move comes shortly after the CFTC settled charges against bitcoin options trading platform Coinflip. In that same ruling, the agency stated that, under its interpretation of the law, bitcoin and digital currencies are commodities.
TeraExchange did not immediately respond to a request for comment.
This article has been updated with additional information about the settlement.
The full CFTC order can be found below:
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