U.S. COMMODITY FUTURES TRADING COMMISSION 


Three Lafayette Centre 


1155 21st Street, NW, Washington, DC 20581 


Telephone: (202) 418-5000 

Facsimile: (202) 418-5538 

Division of 

Enforcement 

NON-PROSECUTION AGREEMENT 

The U.S. Commodity Futures Trading Commission's Division ofEnforcement 

("Division') investigated whether there were possible violations ofthe Commodity 

Exchange Act ("Act") and/or Commission Regulatio'ns ("Regulations"). Specifically, the 

Division investigated, inter alia, whether Citigroup Global Markets Inc., and its agents, 

employees, and affiliates ("Citigroup"), engaged in conduct known to the trade as 

"spoofing" in the U.S. Treasuries futures markets and whether Citigroup failed to 

properly supervise its agents and employees with respect to this conduct in 2011 and 

2012 ("Investigation"). Daniel Liao ("Liao") and the U.S. Commodity Futures Trading 

Commission ("Commission") enter into the following terms and conditions ofa nonprosecution agreement ("Agreement") in connection with the Investigation and any other 

related enforcement litigation or proceeding to which the Commission is a party 

(together, the "Proceedings"): 

The Commission enters into this Agreement based, in part, on Liao's timely and 

substantial cooperation in the Investigation; his immediate willingness to accept 

responsibility for his misconduct, as described herein; the material assistance he provided 

to the Division in the Proceedings, including implicating others at Citigroup for unlawful 

conduct; and the absence of a history of prior misconduct by Liao. 

I. Term 

1. Liao understands and agrees that the provisions of this Agreement are in full force 

and effect from January 31, 2017 to the termination ofthe Proceedings or two years from 

the beginning date of the Agreement which ever is later ("Agreement Period"), unless 

expressly stated otherwise. 

II. Cooperation 

2. Liao agrees to cooperate fully and truthfully in the Proceedings, as directed by the 

D~v~s~on:s staff. .Liao likew~se agrees to cooperate fully and truthfully, as directed by the 

D1v1s1?n s staff, m any official investigation or proceeding by any other federal or state 

authority or a self-regulatory organization related to the Investigation and the factual 

state.me~ts that are ~art of t~is Agreement ("Other Proceedings"). The full, truthful, and 

contmumg coopet·at1on of Liao shall include, but not be limited to: 

a. 	 preserving and producing to the Commission in a responsive and prompt 

?1anner, requested by the Division's staff, all non-privileged documents 

1nfonnat1on, a~d other materials wherever located, in the possession custody

or control of Liao; 	 • • 
Page 2of8 

b. 	 utilizing his knowledge and skill to explain transactions, interpret information 

and tenninology, or identify new and productive lines of inquiry, as requested 

by the Division's staff; 

c. 	 preparing and appearing for interviews and testimony, at such times and 

places and as requested by the Division's staff; 

d. 	 responding completely and trnthfully to all inquiries and interviews, as 

requested by the Division's staff; 

e. 	 identifying and authenticating documents, executing affidavits or declarations, 

and testifying completely and truthfully at depositions, trial, and other judicial 

proceedings; 

f. 	 accepting service by mail, electronic mail, or facsimile transmission of notices 

or subpoenas for documents and/or testimony at depositions, hearings, or 

trials; 

g. 	 appointing Liao's undersigned attorney as agent to receive service of such 

notices and subpoenas; 

h. 	 waiving the territorial limits on service contained in Rule 45 ofthe Federal 

Rules of Civil Procedure and any applicable local rules in connection with 

requests or subpoenas ofthe Division's staff; and 

i. 	 serving by hand delivery or by next-day mail all written notices and 

correspondence required by or related to this Agreement to the Director ofthe 

Division ofEnforcement, U.S. Commodity Futures Trading Commission, 

1155 21st Street, NW, Three Lafayette Centre, Washington, DC 20581, unless 

otherwise directed in writing by the Division's staff. 

III. Statement of Facts 

3. Ifthis case had gone to trial, the Commission would have presented evidence 

sufficient to prove the facts set forth in Exhibit A, which Liao admits. 

IV. Prohibitions and Undertakings 

4. During the Agreement Period, Liao understands and agrees to comply with the 

following prohibitions: 

a. 	 To refrain from violating the Act and/or Regulations; and 

b. 	 To re~rai~ from violating. the rules promulgated by any self-regulatory 

orgamzat1on and any registered entity (as that tenn is defined in 

Section la(40) ofthe Act, 7 U.S.C. § la(40)). 
Page 3 of8 

5. During the Agreement Period, Liao understands and agrees to perfonn the 


following undertakings: 


a. 	 provide written notification to the Division, within fourteen calendar days, if 

Liao has been charged or convicted of an offense by any other federal or state 

authority, or self-regulatory organization. 

b. 	 provide written notification to the Division, within fourteen calendar days, if 

Liao has been questioned, a fonnal or infonnal complaint has been made 

against Liao, or disciplinary action has been taken against Liao, by any other 

federal, state, or self-regulatory organization. 

c. 	 Liao will cooperate fully, as enumerated in Section I. 

6. Nothwistanding the end ofthe Agreement Period, Liao understands and agrees 

that neither Liao nor any of Liao's successors and assigns, agents or employees under 

Liao's authority or control shall take any action or make any public statement denying, 

directly or indirectly, any aspect of this Agreement or creating, or tending to create, the 

impression that this Agreement, which includes the statements in Exhibit A, is without a 

factual basis; provided, however, that nothing in this provision shall affect Liao's (i) 

testimonial obligations, or (ii) right to take legal positions in other proceedings to which 

the Commission is not a party. Liao and his successors and assigns shall undertake all 

steps necessary to ensure that all of Liao's agents and/or employees under Liao's 

authority or control understand and comply with this provision. Ifit is detennined by the 

Division that a public statement by Liao, or by anyone under Liao's authority or control, 

contradicts in whole or in part this Agreement which includes the statements in Exhibit 

A. the Division, at its sole discretion, may recommend, and the Commission may bring, 


an action or proceeding against Liao in accordance with this Agreement. 


7. Notwithstanding the end of the Agreement Period, before issuing any press 


release concerning this Agreement, Liao agrees to have the text of the release approved 


by the Division's staff. 


V. Violation ofthe Agreement 

8. Liao understands and agrees that it shall be a violation ofthis Agreement if Liao 

provides false or misleading information or materials in connection with the Proceedings 

or Other Proceedings if he knew or reasonably should have known the information or 

materials to be false or misleading. Providing false or misleading information or 

materials to the Commission also violates Section 6(c)(2) ofthe Act (7 U.S.C. § 9) and 

also may subject Liao to criminal penalties for providing false information to the U.S. 

Government (18 U.S.C. § 1001), providing false information to the Commission (Section 

6(c)(2) of the Act, 7 U.S.C. § 9), contempt (18 U.S.C. §§ 401-402), perjury 

( l 8 U .S.C. § 162 l), making false statements or declarations in court proceedings 

0 8 lf·~·C· § 1623)'.a.nd/or obstructing justice (18 U.S.C. § 1503 et seq.). Further, 

prov1d111g false, fictitious, or fraudulent information to a registered entity, board oftrade 

swap data repository, or futures association designated or registered under the Act ' 
Page 4 of8 

violates, and may also subject Liao to criminal penalties pursuant to Section 9(a)(4) of 


the Act (7 U.S.C. § 13). 


9. Liao understands and agrees that it shall be a violation ofthis Agreement if Liao 

violates the Act and/or Regulations during the Agreement Period. 

10. Liao understands and agrees that should the Division in its sole discretion 

detennine that Liao failed to comply with any ofthe Prohibitions or Undertakings of this 

Agreement, the Division may recommend an enforcement action against Liao for 

violations of the Act and/or Regulations, including, but not limited to, the substantive 

offenses relating to the Investigation. In such circumstances, the Division will exercise 

its discretion whether to notify Liao or Liao's counsel of a recommended enforcement 

action and whether to provide an opportunity for Liao to make a submission consistent 

with the procedures set forth in Appendix A to Part J1of the Regulations, 17 C.F.R. pt. 

11, app. A. Moreover, nothing in this Agreement limits the Division's discretion to 

recommend to the Commission orthe Commission's authority to bring an enforcement 

action against Liao for violations not arising from this Investigation or for future 

violations of the Act and/or Regulations, without notice, to protect the public interest. 

11. Liao understands and agrees that in the event the Commission does bring an 

enforcement action against Liao following Liao's violation of this Agreement, any 

documents, statements, information, testimony, or evidence provided by Liao during the 

Proceedings and Other Proceedings, as well as any leads derived therefrom, may be used 

against Liao. 

12. Liao understands and agrees that any enforcement action brought by the 

Commission following Liao's violation of the Agreement may be commenced against 

Liao, notwithstanding the expiration of the statute of limitations between the signing of 

this Agreement and the commencement of such action, provided that, applying any and 

all previously executed tolling agreements, the action would not have been time-barred 

by the applicable statute of limitations if brought on the date ofthe execution ofthis 

Agreement. Liao will not assert any claim or defense based on the passage oftime from 

the date of this Agreement to the commencement ofany action or proceeding against 

Liao authorized, instituted, or brought by or on behalf of the Commission or to which the 

Commission is a party arising out of the Investigation, including any sanction or relief 

that may be imposed therein, regardless of whether such claim or defense is 

constitutional, statutory (including any statute of limitations), or equitable (including 

lac~es or other eq~itable doc!1"ines). lt is further understood and agreed that a separate 

tollmg agreement 1s not required to give effect to this paragraph. 

13. IfLiao violate~ this ~g~eement, Liao agrees not to dispute, contest, or contradict 

the factual statements m Exh1b1t A as admissions pursuant to Federal Rule of Evidence 

80 ~ {d)(2), or thei~ admissi~ility, in any future action or proceeding against Liao or any 

action or proceedmg to which the Commission is a party. 
Page 5 of8 

VI. Compliance with Agreement 

14. Subject to the full, truthful, and continuing cooperation of Liao, as described 

above, and compliance with all Prohibitions and Undertakings in this Agreement, as 

described above, the Commission will not bring any enforcement action against Liao 

arising from the Investigation. This Agreement should not, however, be deemed an 

exoneration of Liao or be construed as a finding by the Commission or the Division that 

no violations ofthe Act and/or Commission Regulations have occurred. 

15. Liao understands and agrees that this Agreement does not constitute a grant of 

immunity by the Commission, nor is it any other form of final disposition. 

16. Liao understands and agrees that this Agreement docs not bind any other federal 

or state authority or any self-regulatory organization. The Division may, at its discretion, 

issue a letter to other federal or state authorities or self-regulatory organizations detailing 

the cooperation of Liao during the Proceedings or Other Proceedings, upon Liao's written 

request. 

17. This Agreement does not limit or otherwise affect any understandings or 

conditions in any agreements between Liao and any other federal or state authority or any 

self-regulatory organization, and any agreements between Liao and any other federal or 

state authority or any self-regulatory organization do not limit or otherwise affect the 

understandings and conditions set forth in this Agreement. 

18. Liao understands and agrees that the Agreement only applies to enforcement 

actions arising from the Investigation and does not provide protection for any other 

violations or for any individual or entity other than Liao. 

VII. Voluntary Agreement 

19. Liao's decision to enter into this Agreement is freely and voluntarily made and is 

not the result of force, threats, assurances, promises, or representations other than those 

contained in this Agreement. 

20. Liao has read and understands this Agreement. Furthermore, Liao has reviewed 

all legal and factual aspects of this matter with Liao's attorney and is fully satisfied with 

t~at attorney's legal representation. Liao has thoroughly reviewed this Agreement with 

his attorney and has received satisfactory explanations concerning each paragraph ofthe 

A.greement. After conferring with his attorney and considering all available alternatives, 

Lrao has made a knowing decision to enter into the Agreement. 
• • 

VII I. Entirety of Agr ccnw1 I 

2 1. This 1\ grco:mcnl constilutl!s the enti re agreement bl't\\ccn lhc C'om111 i'>'-i"n and 

I i:u). and "upcrsctlc., all prior understandings. if:my. whcthi.:r oral or '' ri:t1.·n. n.:lat in:; 111 

llw ~uhjc<.:t mnllcr herein. 

2:?. l'hi:-i Agreement cannot be mod ified cxcl.'pl in writi ng. signn l h) I iao uml an 

.iuth111i1..:d r..:prcscnl:Hivc of the Co111mi~s o11. 

23. In the C\Clll illl amhigu il)' 01' ll ljllCIHii1n or intent Ill' inll:rpn;tat it1 n :1t i:·1.·s. thi ~ 

Agrccmcnl shull hc cunslrut:tl as ifdr:tllcd juintl) by tht: partii:s h1.·1 do. ;:nd 11•' 

p1csumpl ion or burden of proof shall arisl! favoring or disfil\·Ning the Commi ~-; i1111 ur 

I 1:10 h:- 'i11111: of the :rnthorship of:iny oft he Pl\J' isions of"thc \~rc1.·nw;1 

2-t. l'hi:. :\grt:1.:m1.:nt may he cxccutcd l>) th1.: panil.!s to it iu rnuntct part'-. ''ith 1.·.1d1 

-:n1111 tcrparf constitu ting lhc cntirt: ;\ gH:umcnt. 

.. 

Div ii.ion ur t::n lim.:cmcnt 

U.S. COMMOl> Iry Fl 11 l. Rl.!'1 TR. \DIN( i 

COMM ISSION 

1\C.JtCED /\NI> l'ONSF.NTED TO· 

Dn11 id Li nu 

I :1111 co~11 :,d for Danid Liao in this <.:ns1:. I have i.: arcfully rcvic11c,l 1his 1\grc,'111~11 1 1\ th 

L1 al). I o my knowlcdgc. lhc decision of Liao to unter i1110 this r'\wwmcnl is inf"onm:d 

:111d ,·01u111af'. ­

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Ch ip l.or1' -- - ·- • 

250 Wc~1 :'51

" Strc1.·1 

New York, N V I 00 I 'J-% 0 I 

(212) 468-ROOO 

'11~011 !a 	
Page 7of8 

EXHIBITA 

Statement of Facts 

1. Liao has worked for Citibank Global Markets Japan ("Citigroup") In Tokyo since 

2009, trading, among other things, U.S. Treasury futures and cash products contracts, 

which he traded in the overnight session for the U.S. Treasury desk at Citigroup 

beginning in late 2011. 

2. In November 2011, Liao traveled from Tokyo to New York to train with, among 

other individuals, senior traders on the U.S. Treasury desk to learn how to trade U.S. 

Treasury futures and cash products. During his approximately six weeks of training in 

New York, Liao was instructed to sit adjacent to and observe the trading activity of other 

traders. During these sessions Liao asked the traders questions about their trading. He 

spent substantial time training with the head trader on the desk ("Head Trader") and 

another senior trader ("Trader A") trading the "on the run," or most recently issued, 

treasuries and correlated futures contracts. One of the trading patterns utilized by Head 

Trader and Trader A that Liao observed, involved the placement of a small order in U.S. 

Treasury futures or cash products on one side of the market and the placement and rapid 

cancellation (often in less than one second) of a much larger futures order on the opposite 

side of the market. At the time, Liao believed the large brief orders were entered to 

induce other market participants, specifically algorithmic traders, to transact on the 

smaller orders. 

3. Following his training in New York, Liao returned to Tokyo in early January 

2012 and began trading U.S. Treasury futures and cash products. Liao also attempted to 

mirror the trading pattern employed by Head Trader and Trader A in New York. From at 

least December 2011 through January 2012, on approximately 30 occasions, Liao entered 

and quickly cancelled large futures orders for the purpose of causing the market to react 

and transact on a smaller order resting on the opposite side of the same futures or 

correlated futures or cash market. In these instances, Liao intended to cancel the large 

futures orders before they were executed. Liao engaged in spoofing (i.e., bidding or 

offering with the intent to cancel the bid or offer before execution) to get his smaller 

orders on the opposite side of the same or correlated market filled (and filled more 

quickly) at the prices he wanted. 

4. On January 31, 2012, Liao placed an order to sell 4,000 ten-year Treasury futures 

contracts with the intention of canceling it before its execution. In placing this order, 

Liao intended to "push the market down" hoping that someone woμld transact on his 

much smaller resting order in ten-year cash Treasuries on the opposite side of the market. 

Despite his intent, almost the entire 4,000-lot futures order traded. Liao immediately 

traded out of the position, but lost approximately $60,000 on the transaction. 

5. Shortly after this incident, Liao called the head of the desk, Head Trader, Trader 

A, and other traders on the U.S. Treasury desk to report his loss and the circumstances 

surrounding.it. ~iao tol~ J:Iead Trader that he had "offered 4,000 contracts in [ten-year 

futures] hopmg rd get hit m some [ten-year cash Treasuries]." Head Trader responded, 
Page 8of8 

in part, "cool, sounds like it didn't cost too much, so that's cool." At this point, Trader A 

got on the phone and asked about what happened. Head Trader responded, ..He offered 

[ten-year futures] in the screens and got lifted," to which Trader A responded, "Oh! You 

were fucking around and got jacked." Liao explained, "yeah, I was. Umm, I mean, like, 

I went 4,000 contracts on the offer at TY and as soon as I offered I got lifted in all of 

them." All three subsequently laughed about the incident. Liao then explained his 

strategy for getting flat, Head Trader responded thanks, and the phone call ended. 

Shortly thereafter, Liao called back Trader A. During this conversation, Trader A told 

Liao not to stress about the incident and reminded Liao that because he is in Tokyo, 

"when you do that, people know what you are doing. There's no liquidity anyway, 

you're on the offer for like umpteenth size, clearly, clearly guys know you want to buy 

shit. Yeah, don't pick up bad habits from us." 

6. Later that same day, Liao chatted about the incident with another trader on the 

desk. This trader admitted to also utilizing a similar trading strategy while he was in 

Tokyo and recalled an incident where his large brief order of 1,000 contracts (that he 

intended to cancel before execution) was transacted upon. This trader told Liao that 

4,000 contracts was a lot to be offering "in an illiquid market." 

7. In October 2013, Liao was interviewed by the CME during which he admitted to 

the misconduct described above. Liao admitted to the same in testimony with the CFTC 

in April 2015. 

*