Fraud Tied to Feeder Markets Knowledge

The Commodity Futures Trading Commission (CFTC) filed a complaint and demanded a jury trial against Dichao Xie over what the agency called a "fraudulent scheme" in which he misused non-public information to trade on the feeder cattle futures and options market. Xie used this information, according to the complaint, "for his personal benefit."

The trades targeted in the complaint range from December 2021 through March 2022. During this time, Xie was a quantitative trader at a large multinational corporation (unidentified in publicly available court documents). Xie's position gave him access to options and futures positions, as well as orders, in agricultural commodities that included feeder cattle.

At least 71 times, it is alleged, Xie used this inside information to execute transactions on feeder cattle futures and options through a personal trading account. These transactions, according to the complaint, generated a profit to Xie of at least $178,075.

Xie, born in 1988, is a citizen of China. He currently resides in London, United Kingdom. During the period the complaint addresses, Xie was on a team that created and designed trading strategies for the employer, specifically those that traded on the Chicago Mercantile Exchange (CME).

Xie had signed an agreement to not use confidential company information for personal benefit.

Counts the complaint lists include fraud, fraud in connection with futures trading, fraud in connection with options trading, fictitious trades, noncompetitive trades.

THE GOOD SIDE OF THESE CHARGES

This complaint by the CFTC may lead to questions about feeder cattle trading, but Iowa State University Extension economist Lee Schulz said it shows the agency is effectively monitoring these markets.

"This is the role of the CFTC," Schulz stressed to DTN. "I think this shows there is government oversight and that these markets are being closely monitored. I think it's also important to understand that this is an isolated case."

Schulz added it's important to remember that markets are amazingly resilient and that even when the industry has seen turbulent times and external shocks, markets have continued to work well. Given today's market volatility in cattle, he said, it's not the time for producers to be afraid to utilize price risk management tools.

"Sometimes when we see higher prices, we can get a little lax about using risk management tools," he said. "They are arguably more important now, because there are more dollars at stake with higher costs of production and higher feeder prices. I encourage producers to use these tools to lock in profits, to set price floors. Also, consider livestock risk protection insurance."

Asked if today's strong cattle market is a lure to inside traders, Schulz said that while he's not willing to go that far, he does believe there's a lot more attention on these markets.

"Higher prices always bring more attention to markets," he said. "We see more volatility, and we see more opportunities to trade, especially from a speculative side. And we need speculators because they bring liquidity to the marketplace. What we see in this case just shows us the CFTC is monitoring our markets, and that is a positive."

Victoria Myers can be reached at vicki.myers@dtn.com

Follow her on Twitter @myersPF

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