A $17 million market manipulation scheme, 50 wash trades, and one $200,000 fine — that’s the fallout last week as the U.S. Commodity Futures Trading Commission took action against Taishin Securities. The Taiwanese financial services company was charged with violating key U.S. market regulations after manipulating trades on the Chicago Mercantile Exchange.
At the base of this case lies a series of transactions known as “wash sales” — effectively trades made to look competitive while actually neutralizing the risk inherent to the open marketplace.
A wash sale is where the investor sell some stocks at a loss, but then turns around and immediately buys that same stock back at the same price. Uncle Sam doesn’t like this because it looks like you’re just trying to score some tax breaks without actually changing your investments
According to the CFTC’s order, between October and December 2022, Taishin Securities engaged in 50 wash trades involving 175 contracts with a combined value of $17 million.
The firm, represented by a trader operating out of Taiwan, moved futures positions from one broker to another. This trader had reached the firm’s internal trading limits with the first broker, and in an effort to sidestep those constraints, executed offsetting orders — essentially buying and selling the same futures contract, for the same price, at the same time. The result was a slick mechanism that circumvented market competition, stabilizing prices and erasing the volatility that could have made the trades either lucrative or risky.
The CFTC’s findings make clear that Taishin Securities not only violated the Commodity Exchange Act but also directly undermined the integrity of the market. The purpose of a competitive futures market is to facilitate price discovery — buyers and sellers are supposed to negotiate and compete, and prices rise or fall based on their actions. But by engaging in wash sales, Taishin essentially pretended to participate in this process while neutralizing any real effect on the market.