UNITED STATES OF AMERICA

Before the

COMMODITY FUTURES TRADING COMMISSION

In the Matter of:

HSBC Securities (USA) Inc.,

Respondent.

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CFTC Docket No. 18-08

ORDER INSTITUTING PROCEEDINGS PURSUANT TO

SECTION 6(c) AND (d) OF THE COMMODITY EXCHANGE ACT, MAKING 

FINDINGS, AND IMPOSING REMEDIAL SANCTIONS

I.

INTRODUCTION

The Commodity Futures Trading Commission (“Commission”) has reason to believe that 

HSBC Securities (USA) Inc., (“HSBC” or “Respondent”) has violated Section 4c(a)(5)(C) of the 

Commodity Exchange Act (the “Act” or “CEA”), 7 U.S.C. § 6c(a)(5)(C) (2012). Therefore, the 

Commission deems it appropriate and in the public interest that public administrative 

proceedings be, and hereby are, instituted to determine whether Respondent engaged in the 

violations set forth herein and to determine whether any order should be issued imposing 

remedial sanctions.

In anticipation of the institution of an administrative proceeding, Respondent has 

submitted an Offer of Settlement (“Offer”), which the Commission has determined to accept. 

Without admitting or denying any of the findings or conclusions herein, Respondent consents to 

the entry of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the 

Commodity Exchange Act, Making Findings, and Imposing Remedial Sanctions (“Order”), and 

acknowledges service of this Order.1

 1 Respondent consents to the use of these findings and conclusions in this Order in this proceeding and in any other 

proceeding brought by the Commission or to which the Commission is a party or claimant, and agrees that they shall 

be taken as true and correct and be given preclusive effect therein, without further proof. Respondent does not 

consent, however, to the use of this Order, or the findings or conclusions herein, as the sole basis for any other 

proceeding brought by the Commission or to which the Commission is a party, other than a proceeding in 

bankruptcy or receivership or a proceeding to enforce the terms of this Order. Respondent does not consent to the 
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II.

FINDINGS

The Commission finds the following:

A. SUMMARY

From at least July 16, 2011, through August 2014, (the “Relevant Period”), HSBC, by 

and through one of its traders (“Trader A”), engaged in the disruptive trading practice of 

“spoofing” (bidding or offering with the intent to cancel the bid or offer before execution) with 

respect to certain futures products in gold and other precious metals (“Precious Metals”) traded 

on the Commodity Exchange, Inc. (“COMEX”). This spoofing conduct violated Section 

4c(a)(5)(C) of the Act, 7 U.S.C. § 6c(a)(5)(C) (2012).

* * * * *

In accepting the Respondent’s Offer, the Commission recognizes the Respondent’s 

significant cooperation with the Division of Enforcement’s (“Division”) investigation of this 

matter, which is explained in more detail below. The Commission notes that Respondent’s 

cooperation and remediation is reflected in the form of a substantially reduced penalty.

B. RESPONDENT

HSBC is an indirectly wholly-owned subsidiary of HSBC Holdings PLC, a global

banking and financial services company headquartered in London. Throughout the Relevant 

Period, HSBC maintained its principal office in New York and, in the course of its business 

activities, traded futures contracts in the United States. HSBC has been registered with the 

Commission as a futures commission merchant (“FCM”) since 1980.

C. FACTS

1. HSBC’s Disruptive Trading

During the Relevant Period, a number of traders, including Trader A, were employed in 

HSBC’s New York office. As part of his duties, Trader A placed orders and entered into 

transactions for futures contracts in Precious Metals, which were traded on the COMEX, a 

futures exchange and designated contract market which is owned and operated by CME Group, 

Inc. (“CME”). Trader A made a market for precious metals derivatives products and traded 

futures principally to hedge customer orders with the aim of profitably managing his desk’s 

overall position.

On numerous occasions during the Relevant Period, Trader A placed orders for futures 

contracts in Precious Metals, primarily gold, with the intent to cancel before their execution. 

Trader A’s spoofing strategy frequently involved placing a relatively small bid or offer with the 

 

use of the Offer or this Order, or the findings or conclusions in this Order, by any other party in any other 

proceeding.
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intent to execute that order (the “Resting Order”) and, prior to the execution of the Resting 

Order, placing a larger order (or multiple orders), which Trader A intended to cancel before 

execution, on the opposite side of the same market (the “Spoof Order”). Generally, Trader A 

would receive a partial or complete fill of the Resting Order and cancel the Spoof Order before it 

was filled. 

2. HSBC’s Cooperation and Remediation

Before and during the course of the Division’s investigation of potential misconduct in 

the precious metals market, HSBC, and where appropriate its affiliates: conducted an internal 

review, including analyzing the trading activity of certain traders for potential spoofing 

misconduct; substantially assisted the Division’s investigation by proactively expanding its 

internal review; identified Trader A’s misconduct, and promptly reported it to the Division; 

promptly took appropriate personnel measures with regard to Trader A; and provided important 

information and analysis to the Division, which helped the Division to efficiently and effectively 

carry out its investigation. 

HSBC has represented that it also initiated an overhaul of its systems and controls and 

implemented a variety of enhancements to detect and deter similar misconduct. HSBC has 

further represented that, as part of this process, HSBC revised its policies, updated its training, 

and updated its electronic monitoring and surveillance practices to detect and deter potential 

spoofing misconduct and other manipulative trading.

III.

LEGAL DISCUSSION

A. Spoofing in the Precious Metals Futures Markets, in Violation of Section 4c(a)(5)(C) 

of the Act

Section 4c(a)(5)(C) of the Act makes it unlawful for “[a]ny person to engage in any 

trading, practice, or conduct on or subject to the rules of a registered entity that . . . is, is of the 

character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the 

intent to cancel the bid or offer before execution).” 7 U.S.C. § 6c(a)(5)(C) (2012); see also 

United States v. Coscia, No. 16-3017, 2017 WL 3381433, at *7 (7th Cir. Aug. 7, 2017) (holding 

that because the CEA clearly defines spoofing, it provides adequate notice of prohibited 

conduct). 

As described above, Trader A entered numerous bids or offers on a registered entity with 

the intent to cancel the bids or offers before execution, in violation of Section 4c(a)(5)(C) of the 

Act. See, e.g., In re Posen, CFTC No. 17-20, 2017 WL 3216576, at *2 (July 26, 2017) (consent 

order) (finding that manual trader “entered into thousands of bids or offers on a registered entity 

with the intent to cancel the bids or offers before execution in violation of Section 4c(a)(5)(C) of 

the Act”); CFTC v. Oystacher, 203 F. Supp. 3d 934, 942 (N.D. Ill. 2016) (denying motion for 

judgment on the pleadings, holding that allegations of placing “both bids and offers with the 

intent to cancel those bids or offers before execution” constitutes “trading behavior [that] falls 

within the Spoofing Statute’s defined prohibition”); CFTC v. Nav Sarao Futures Ltd., No. 15-

3398, 2016 WL 8257513, at *10 (N.D. Ill. Nov. 14, 2016) (consent order) (finding that 
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defendants engaged in spoofing techniques by, among other things, “plac[ing] tens of thousands 

of bids and offers for the E-Mini S&P contract with the intent of cancelling those bids and offers 

before execution (i.e., Spoof Orders)”); CFTC v. Khara, No. 15-CV-03497, ECF 35 at 6 

(S.D.N.Y. Mar. 31, 2016) (consent order) (finding that “Defendants . . . engaged in unlawful 

disruptive trading practices or conduct in the gold and silver futures markets . . . that were, were 

of the character of, or were commonly known to the trade as ‘spoofing’ (bidding and offering 

with the intent to cancel the bid or offer before execution).”).

B. Respondent HSBC Is Liable for the Acts of Its Agent

Section 2(a)(1)(B) of the Act, 7 U.S.C. § 2(a)(1)(B) (2012), and Regulation 1.2, 17 

C.F.R. § 1.2 (2017), provide that “[t]he act, omission, or failure of any official, agent, or other 

person acting for any individual, association, partnership, corporation, or trust within the scope 

of his employment or office shall be deemed the act, omission, or failure of such individual, 

association, partnership, corporation, or trust.” Pursuant to Section 2(a)(1)(B) of the Act and 

Commission Regulation 1.2, strict liability is imposed on principals for the actions of their 

agents. See, e.g., Rosenthal & Co. v. CFTC, 802 F.2d 963, 966 (7th Cir. 1986); DohmenRamirez & Wellington Advisory, Inc. v. CFTC, 837 F.2d 847, 857-58 (9th Cir. 1988); CFTC v. 

Byrnes, 58 F. Supp. 3d 319, 324 (S.D.N.Y. 2014).

Trader A engaged in the conduct described herein within the course and scope of his

employment; therefore, pursuant to Section 2(a)(1)(B) of the Act and Regulation 1.2, Respondent is

liable for the acts, omissions, and failures of Trader A in violation of the provisions of the Act and 

Commission Regulations cited above.

IV.

FINDINGS OF VIOLATIONS

Based on the foregoing, the Commission finds that, during the Relevant Period, the 

Respondent violated Section 4c(a)(5) of the Act, 7 U.S.C. § 6c(a)(5)(C) (2012).

V.

OFFER OF SETTLEMENT

Respondent has submitted the Offer in which it, without admitting or denying the 

findings and conclusions herein:

A. Acknowledges receipt of service of this Order;

B. Admits the jurisdiction of the Commission with respect to all matters set forth in this 

Order and for any action or proceeding brought or authorized by the Commission based 

on violation of or enforcement of this Order; 

C. Waives:

1. The filing and service of a complaint and notice of hearing;
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2. A hearing;

3. All post-hearing procedures;

4. Judicial review by any court;

5. Any and all objections to the participation by any member of the Commission’s 

staff in the Commission’s consideration of the Offer;

6. Any and all claims that it may possess under the Equal Access to Justice Act, 5 

U.S.C. § 504 (2012) and 28 U.S.C. § 2412 (2012), and/or the rules promulgated by 

the Commission in conformity therewith, Part 148 of the Commission’s 

Regulations, 17 C.F.R. pt.148 (2017), relating to, or arising from, this proceeding;

7. Any and all claims that it may possess under the Small Business Regulatory 

Enforcement Fairness Act of 1996, Pub. L. No. 104-121, §§ 201-53, 110 Stat. 847, 

857-74 (codified in scattered sections of 5 U.S.C. and 15 U.S.C.), relating to, or 

arising from, this proceeding; and

8. Any claims of Double Jeopardy based on the institution of this proceeding or the 

entry in this proceeding of any order imposing a civil monetary penalty or any 

other relief;

D. Stipulates that the record basis on which this Order is entered shall consist solely of the 

findings contained in this Order to which Respondent has consented in the Offer;

E. Requests, for the reasons set forth in Respondent’s letter dated January 18, 2018

(“Request Letter”), that the Commission advise that, under the circumstances, 

disqualification under Rule 262(a) of Regulation A and Rule 506(d)(1) of Regulation D 

of the Securities & Exchange Commission (“SEC”), 17 C.F.R. §§ 230.262(a),

230.506(d)(1) (2017), should not arise as a consequence of this Order; and

F. Consents, solely on the basis of the Offer, to the Commission’s entry of this Order that:

1. makes findings by the Commission that: 

Respondent, by and through its agent, Trader A, engaged in spoofing in the futures 

markets, in violation of Section 4c(a)(5)(C) of the Act, 7 U.S.C. § 6c(a)(5)(C) 

(2012);

2. orders Respondent to cease and desist from violating Section 4c(a)(5)(C) of the 

Act; 

3. orders Respondent to pay a civil monetary penalty in the amount of one million six 

hundred thousand dollars ($1,600,000), plus post-judgment interest within ten (10) 

days of the date of entry of this Order;
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4. orders Respondent and its successors and assigns to comply with the conditions 

and undertakings consented to in the Offer and as set forth in Part VI of this Order; 

and

5. advises that, under the circumstances, disqualification under Rule 262(a) of 

Regulation A and Rule 506(d)(1) of Regulation D of the SEC should not arise as a 

consequence of this Order.

Upon consideration, the Commission has determined to accept the Offer.

VI.

ORDER

Accordingly, IT IS HEREBY ORDERED THAT:

A. Respondent and its successors and assigns shall cease and desist from violating Section 

4c(a)(5) of the Act, 7 U.S.C. § 6c(a)(5)(C) (2012).

B. Respondent shall pay a civil monetary penalty of one million six hundred thousand 

dollars ($1,600,000), within ten (10) days of the date of the entry of this Order (the “CMP

Obligation“). If the CMP Obligation is not paid in full within ten (10) days of the date of 

entry of this Order, then post-judgment interest shall accrue on the CMP Obligation 

beginning on the date of entry of this Order and shall be determined by using the 

Treasury Bill rate prevailing on the date of entry of this Order pursuant to 28 U.S.C. 

§ 1961 (2012).

Respondent shall pay the CMP Obligation by electronic funds transfer, U.S. postal 

money order, certified check, bank cashier’s check, or bank money order. If payment is 

to be made other than by electronic funds transfer, then the payment shall be made 

payable to the Commodity Futures Trading Commission and sent to the address below:

Commodity Futures Trading Commission

Division of Enforcement

ATTN: Accounts Receivables --- AMZ 340

E-mail Box: 9-AMC-AMZ-AR-CFTC

DOT/FAA/MMAC

6500 S. MacArthur Blvd.

Oklahoma City, OK 73169

Telephone: (405) 954-7262

If payment is to be made by electronic funds transfer, Respondent shall contact Marie 

Thorn or her successor at the above address to receive payment instructions and shall 

fully comply with those instructions. Respondent shall accompany payment of the CMP 

Obligation with a cover letter that identifies the paying Respondent and the name and 

docket number of this proceeding. The paying Respondent shall simultaneously transmit 

copies of the cover letter and the form of payment to the Chief Financial Officer, 
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Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, D.C. 20581.

C. Respondent and its successors and assigns shall comply with the following conditions 

and undertakings set forth in the Offer:

1. Public Statements: Respondent agrees that neither it nor any of its successors and 

assigns, agents, or employees under their authority or control shall take any action 

or make any public statement denying, directly or indirectly, any findings or 

conclusions in this Order or creating, or tending to create, the impression that this 

Order is without a factual basis; provided, however, that nothing in this provision 

shall affect Respondent’s: (i) testimonial obligations; or (ii) right to take legal 

positions in other proceedings to which the Commission is not a party. 

Respondent and its successors and assigns shall comply with this agreement, and 

shall undertake all steps necessary to ensure that all of their agents and/or 

employees under their authority or control understand and comply with this 

agreement.

2. Procedures and Controls To Detect Spoofing Activity: Respondent shall maintain 

systems and controls reasonably designed to detect spoofing activity by its 

traders, such as the systems and controls Respondent developed and implemented 

after the Relevant Period. These systems and controls shall, at a minimum, be 

designed to detect and generate a report regarding patterns of trading that might 

constitute spoofing activity in the futures markets. Respondent’s personnel shall 

reasonably promptly review such reports and follow up as necessary to determine 

whether spoofing activity has occurred.

3. Training: Respondent shall provide training, at least annually, addressing the 

legal requirements of the Act with regard to spoofing, manipulation, and 

attempted manipulation, to be given to all employees trading on behalf of 

Respondent or other affiliated entities who submit any orders on futures markets, 

and their supervisors.

4. Cooperation with the Commission: Respondent shall cooperate fully and 

expeditiously with the Commission, including the Commission’s Division of 

Enforcement, in this action, and in any current or future Commission 

investigation or action related thereto. Respondent shall also cooperate in any 

investigation, civil litigation, or administrative matter related to, or arising from,

this action. As part of such cooperation, Respondent agrees to: 

i. preserve and produce to the Commission in a responsive and prompt 

manner, as requested by the Division’s staff, all non-privileged 

documents, information, and other materials wherever located, including 

but not limited to audio files, electronic communications, and trading 

records and data, in the possession, custody, or control of Respondent; 

ii. comply fully, promptly, completely, and truthfully, subject to any legally 
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recognized privilege, with any inquiries or requests for information and 

documents;

iii. identify and authenticate relevant documents and other evidentiary 

materials, execute affidavits or declarations, and provide a corporate 

representative to testify completely and truthfully at depositions, trial, and 

other judicial proceedings, when requested to do so by the Division’s staff;

iv. use its best efforts to produce any current (as of the time of the request) 

officer, director, employee, or agent of Respondent, regardless of the 

individual’s location, and at such a location that minimizes Commission 

travel expenditures, to provide assistance at any trial, proceeding, or 

Commission investigation related to the subject matter of this proceeding, 

including but not limited to, requests for testimony, depositions, and/or 

interviews, and to encourage them to testify completely and truthfully in 

any such proceeding, trial, or investigation; and 

v. subject to applicable laws and regulations, use its best efforts to assist in 

locating and contacting any prior (as of the time of the request) officer, 

director, employee, or agent of Respondent. 

5. Partial Satisfaction: Respondent understands and agrees that any acceptance by 

the Commission of any partial payment of Respondent’s CMP Obligation shall 

not be deemed a waiver of its obligation to make further payments pursuant to this 

Order, or a waiver of the Commission’s right to seek to compel payment of any 

remaining balance.

6. Change of Address/Phone: Until such time as Respondent satisfies in full its 

CMP Obligation as set forth in this Order, Respondent shall provide written 

notice to the Commission by certified mail of any change to its telephone number 

and mailing address within ten (10) calendar days of the change. 

D. Based on the nature of the violations; the findings made, and the sanctions, conditions, 

and undertakings imposed in the Order; and the facts and representations in Respondent’s 

Request Letter, the Commission advises2 that, under the circumstances, disqualification 

under Rule 262(a) of Regulation A and Rule 506(d)(l) of Regulation D of the SEC, 17 

 2 Rule 506(d)(l)(iii)(B) disqualifies an issuer from relying on the private offering exemptions provided for in Rule 

506 if they or certain related parties are “subject to a final order of . . . [inter alia] the U.S. Commodity Futures 

Trading Commission . . . that: . . . [c]onstitutes a final order based on a violation of any law or regulation that 

prohibits fraudulent, manipulative, or deceptive conduct.” Rule 506(d)(2)(iii), however, provides that 

disqualification “shall not apply” if the CFTC “advises in writing” that disqualification under Rule 506(d)(1) 

“should not arise as a consequence of such order.” See also 17 C.F.R. §§ 262(a)(3)(ii), (b)(3) (parallel provisions 

under Regulation A); SEC, Exemptions to Facilitate Intrastate and Regional Securities Offerings, 81 Fed. Reg. 

83,494, 83,545 (Nov. 21, 2016) (stating that disqualification under Rule 504 arises “absent a waiver or other 

exception provided in Rule 506(d)”).