What's the difference between market manipulation and a great trade? A high profile CFTC case that went to trial in 2016 gives us some helpful clues. This is the story of CFTC vs. Don Wilson & DRW:pic.twitter.com/PhIAVFkFu2
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Instead of settling, DRW took the case to court in 2016. To win, the CFTC had to overcome a high burden of proof - the hardest of which was an "artificial price" was created in Nasdaq's market. DRW argued it was merely performing necessary arbitrage to keep markets functioning.
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After two long years of trial drama, the CFTC's lawsuit was dismissed. DRW and Wilson had overcome the industry's top regulator in court. This priceless quote sums up the verdict pretty well:pic.twitter.com/OQtiuSSTq7
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The moral of the story is this - trading in illiquid markets is risky business. There's a fine line between "talking your book" and manipulating the market. Regulators have an extremely high burden of proof when alleging manipulation. In this case, DRW survived.
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DRW's history & rise to power in high frequency trading is extremely fascinating. I'll be writing more about them in this Friday's newsletter - sign up below so you don't miss it:https://frontmonth.substack.com/
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