A Contract for Difference (CFD) is a derivative that allows
investors to speculate on the future price movements of the
underlying asset, without having to own them. CFDs are
available for a wide range of assets ranging from shares to
commodities, and they are traded on margin i.e. investors only
pay a small percentage of the value of the underlying shares.
While the risks are higher if the underlying counter were to move
against the investor’s position, the rewards are also higher if
the counter were to move in favour of the investor. CFDs are
generally traded over-the-counter with a CFD provider, as
the counterparty to the trades. When trading in CFDs, the
investor first enters into an opening trade with a CFD provider.
The investor subsequently enters into a trade to close his CFD
position and the profits or losses are determined based on the
price difference.
Ee Cho Lian (Ee) traded in CFDs offered by City Index Pte Ltd
(City Index), which priced these contracts by referencing the
live best bid-ask prices of the underlying securities listed on the
Singapore Exchange (SGX).
Ee saw an opportunity to exploit City Index’s pricing mechanism
to reap unlawful profits. His first attempt to capitalise on this
opportunity took place in April 2018. He placed an order to buy
10,000 Mandarin Oriental International Limited (MANO) CFDs at
US$2.30 via his City Index CFD trading account. At that time,
the best ask price of the underlying MANO shares on the SGX,
and accordingly the price of MANO CFDs offered by City Index,
was US$2.37. Ee’s buy order price was obviously too low for
the order to be executed. Ee used his shares trading account to
place a sell order on SGX for MANO shares at US$2.30. This selorder triggered City Index’s pricing mechanism to reduce its ask
price for MANO CFD, and enabled Ee to purchase the MANO
CFDs from City Index at US$2.30. Once he had purchased his
CFDs, Ee quickly cancelled his sell order for the shares. Ee then
took similar steps to close his CFD position and reap a profit.
He placed a sell order for CFDs at a price higher than City
Index’s offer, and then used his shares trading account to place
a buy order to push up City Index’s offer to match his CFD
sell order price. As a result, Ee successfully closed off his CFD
position at US$2.36, significantly higher than the previously
offered price of US$2.29.
All this took place within three minutes and netted Ee profits of
US$600. This conduct of placing orders on the stock exchange
for a brief moment before deleting the order, without a genuine
intention to trade, is better known as spoofing and it is illegal.
Investigations revealed that Ee carried out several more rounds
of such CFD trades from 5 April 2018 to 14 December 2018.
He even used CFD trading accounts belonging to his friends,
without authorisation, to further his scheme. In total, Ee
conducted 60 fraudulent CFD trades and made profits of more
than S$24,000 at the expense of City Index.
On 19 May 2021, Ee was sentenced to six weeks’ imprisonment
and a fine of S$30,000 on 20 counts of employing a scheme to
defraud under Section 201(a) punishable under Section 204 of
the Securities & Futures Act (SFA) and one count of unauthorised
trading under Section 201(b) punishable under Section 204 of
the SFA. 42 similar charges were taken into consideration for the
purpose of sentencing. Ee has made full restitution to City Index.