Lawsuit Stunner: Half of Futures Trades in Chicago Are Illegal Wash Trades

Wall Street On Parade reports:

The most stunning allegation in the lawsuit is that an estimated 50 percent of all trading on the Chicago Mercantile Exchange is derived from illegal wash trades.

Wash trades were a practice by the Wall Street pool operators that rigged the late 1920s stock market, leading to the great stock market crash from 1929 through 1932 and the Great Depression. Wash trades occur when the same beneficial owner is both the buyer and the seller. Wash trades are banned under United States law because they can falsely suggest volume and price movement.

The lawsuit says Duffy and his management team are tolerating wash trades “because they comprise by some estimates fifty percent of the Exchange Defendants’ total trading volume and also because HFT transactions account for up to thirty percent of the CME Group’s revenue.”

The complaint indicates that the plaintiffs have a “Confidential Witness A,” a high frequency trader, who has given them a statement that wash trades are used by high frequency traders as part of a regular strategy to detect market direction and “to exit adverse trades when the market goes against their positions.”

Maybe, everything should be done "first in, first out" that would make a real market.