Because the derivative market is frequently far larger than the cash market that prices it. Moving a small market to change the value of a large position is arithmetically attractive whenever the ratio between them is big enough.

Is the cash trading itself unlawful?

Each trade is ordinary. What makes the course of conduct unlawful is its purpose — trading not to acquire a position but to move a reference price that pays off elsewhere. This is open-market manipulation, with the doctrinal difficulty that entails.

How is intent established?

From the loss. Cash trading that is systematically unprofitable, confined to reference-setting periods, and aligned with a much larger derivative position has no explanation other than the derivative.

Why is this harder to detect than single-market manipulation?

Because neither dataset shows it. The cash trading looks like a bad trader; the derivative position looks like an ordinary position. The scheme exists only in the relationship between them, which requires joining data across venues and often across regulators.

What is cross-market surveillance?

Systems and arrangements for combining order and position data across venues and instruments so that patterns spanning them become visible. It exists substantially because of this technique.

Does this happen in equities?

Yes. Trading a thinly traded underlying to affect the settlement of options or structured products written on it is the same structure. It also appears in single-stock futures and in index components around rebalance dates.

Common, because derivatives volumes on major tokens frequently exceed spot volumes on the venues used as price references. Moving a reference exchange's thin book to affect much larger perpetual futures positions is a recognised pattern.

How large does the ratio need to be?

Large enough that the derivative gain exceeds the cash loss. In practice schemes have run at ratios from about five to one upward, and the ratio itself is a detection signal because both legs are reported.

Cash versus derivatives schemes

A cash versus derivatives scheme establishes a large derivative position and then trades the smaller underlying market at a deliberate loss, in order to move the reference price the derivative settles against.

Also called cross-market manipulation, marking the underlying. Observed in futures, commodities, equities, bonds, crypto. One of the benchmark and cross-market manipulation techniques. 10 enforcement actions in the library.
Updated 2026-09-07

How does a cash versus derivatives scheme work?

Derivatives are usually bigger than the things they derive from.

A commodity’s futures and swaps market routinely turns over many times the physical market. Options open interest on a stock can exceed its float. Perpetual futures on a token can dwarf spot volume on the venues used to price them. In each case, a large market takes its price from a small one.

That relationship is the entire mechanism.

Establish the derivative position first. Large, and referenced to a cash or spot price.
Trade the cash market. In the direction the derivative requires. Because the cash market is small, this does not take much capital — and because the trader is pushing the price rather than seeking a good fill, it loses money.
Let the reference propagate. The settlement, the fixing, the index calculation, the option exercise decision. Whatever mechanism links the two.
Collect on the derivative, and unwind the cash position, usually at a further loss.

The scheme’s defining feature is that neither market shows it. Look only at the cash trading and you see somebody trading badly. Look only at the derivative position and you see somebody with a position. The manipulation exists in the relationship between them, and nowhere else.

That is why cross-market surveillance exists as a distinct discipline, and why it took as long as it did to develop.

A small market prices a large one. That is the whole opportunity.

A worked example with real numbers

A commodity where the physical spot market trades about 40,000 tonnes a day, and the futures and swap complex referencing the same price carries roughly 900,000 tonnes of open interest.

A participant holds swaps giving exposure to 120,000 tonnes, settling against the spot price averaged over three days.

The cash trading. Over those three days they buy 26,000 tonnes physically, paying up.


Average paid	$618/tonne
Prevailing pre-intervention price	$604/tonne
Loss on the physical, marked back to $604	26,000 × $14 = $364,000

The reference. Their buying is 22% of the three-day spot volume, moving the averaged reference:

Reference without their trading  ≈  $604.50
Reference with it                ≈  $612.20
Movement                         =    $7.70

The swap payoff.

120,000 tonnes × $7.70 = $924,000

Net of the $364,000 lost on the physical, roughly $560,000, plus the residual value of 26,000 tonnes they must now dispose of into a market they have just pushed up.

The ratio is what makes it work: 26,000 tonnes of trading moved 120,000 tonnes of exposure, about 4.6 to one. In schemes where the derivative market is more disproportionate — as it frequently is in crypto and in some interest rate products — the ratio is far larger and the arithmetic correspondingly better.

Note also the residual position problem, which recurs across this whole family. The 26,000 tonnes must be sold, into a market that no longer has the buying pressure the trader created. Schemes that look excellent on the derivative leg often leak most of the gain on the unwind.

Why are cash versus derivatives schemes illegal?

The conduct engages the manipulation provisions of whichever market is affected, and often both.

Commodity Exchange Act § 9(a)(2) prohibits manipulating the price of a commodity, which covers moving a cash price to affect a derivative settlement. It requires proving an artificial price.

CFTC Rule 180.1 reaches manipulative or deceptive devices in connection with any swap or contract of sale of a commodity, without the artificiality burden. Because the rule reaches both cash and derivative conduct, it is well suited to schemes that span them.

Exchange Act § 9(a)(2) and Rule 10b-5 cover the equivalent conduct in securities — trading a thinly held underlying to affect options or structured products written on it.

The doctrinal difficulty is the one that recurs throughout open-market manipulation. Every cash trade is genuine, executed at risk, and lawful in isolation. The unlawfulness lies in purpose. Courts have divided on how far intent alone can convert lawful trades into a manipulative scheme.

What makes these cases more tractable than most open-market matters is the loss. A trader who consistently loses money in a specific market, in a pattern precisely aligned with a much larger position elsewhere, has provided the evidence of purpose that intent-based cases normally lack. Nobody trades badly on purpose for no reason.

Jurisdictional complexity is a real practical obstacle. The cash market may be regulated by one authority, the derivative by another, and either may sit offshore. Schemes have been structured deliberately to exploit that separation, which is why information-sharing arrangements between regulators matter as much here as any substantive rule.

Provisions most often charged
Provision	Citation	Primary text
Commodity Exchange Act — manipulation	7 U.S.C. § 13(a)(2)	Read the text
CFTC Rule 180.1 — fraud-based manipulation	17 C.F.R. § 180.1	Read the text
SEC Rule 10b-5	17 C.F.R. § 240.10b-5	Read the text
Securities Exchange Act — manipulative transactions	15 U.S.C. § 78i(a)(2)	Read the text

Which real enforcement actions have alleged cash vs derivatives schemes?

This library holds 10 enforcement actions tagged cash vs derivatives schemes. The table shows the largest by civil penalty together with the most recently filed. Every row links to a page carrying the regulator's own release and, where one was published, the complaint.

Selected cash vs derivatives schemes actions
Action	Agency	Filed	Penalty	Status
CFTC v. HSBC Bank USA (cash vs derivatives schemes, 2023)	CFTC	2023-11-07	$1.7bn	filed
CFTC v. Lloyds Banking Group and Lloyds Bank (benchmark submission rigging, 2014)	CFTC	2014-07-29	$105m	judgment
CFTC v. unnamed respondents (cash vs derivatives schemes, 2022)	CFTC	2022-10-20	$41m	judgment
CFTC v. Citigroup Global Markets Inc. (cash vs derivatives schemes, 2017)	CFTC	2017-01-19	$25m	judgment
CFTC v. Futures Trader and Trading Firm (cash vs derivatives schemes, 2018)	CFTC	2018-09-19	$1.8m	judgment
SEC v. TD Securities (USA) LLC (cash vs derivatives schemes, 2024)	SEC	2024-09-30	—	unknown
CFTC v. unnamed respondents (cash vs derivatives schemes, 2023)	CFTC	2023-06-12	—	unknown

All 10cash vs derivatives schemesactions →

How do cash versus derivatives schemes get detected?

Only by joining the data. Every technique below depends on having both sides.

Position-to-activity correlation. For participants above reporting thresholds, comparing derivative positions against cash market activity. Cash trading that consistently precedes and supports a derivative position is the core finding.

Standalone cash profit and loss. Isolating the cash trading and asking whether it made money. Systematic losses confined to reference-setting periods are the signature.

Reference-period concentration. Whether cash activity clusters around settlement windows, fixing periods and expiry dates rather than being distributed through time.

Basis analysis. Dislocations between cash and derivative prices that no financing, storage or supply factor explains.

Cross-regulator cooperation. Where the two markets sit under different authorities, or in different jurisdictions, the scheme is invisible until the data is shared. This is the practical bottleneck in most of these investigations.

A derivative position established before, and substantially larger than, the cash market activity that follows.
Cash trading that is loss-making on its own terms and confined to periods that determine the reference.
Position and trading data that only reveal the scheme when the two markets are joined.
Activity concentrated on expiry dates or reference-setting periods rather than distributed through time.
Cash positions unwound immediately after the reference is set, at a loss.

What penalties does cash vs derivatives schemes actually attract?

The numbers below are computed from this site's own case records at build time, not quoted from a secondary source. They change whenever a new action is added to the library.

Actions recorded: 10
Median penalty: $33m
Largest penalty: $1.7bn
Criminal parallel: 10%
Median sentence: —

Computed from 10enforcement actions in our own case library tagged cash-vs-derivatives-schemes , filed between 2014 and 2024. Median penalty covers the 6actions where a civil monetary penalty was disclosed; median sentence covers the 0 defendants who received a custodial term. Penalties exclude disgorgement and prejudgment interest, which are reported separately on each case page.

Largest single penalty: CFTC v. HSBC Bank USA (cash vs derivatives schemes, 2023) .

What are the red flags?

A thinly traded cash instrument that moves sharply during a period used to price a much larger derivative.
Basis relationships that dislocate without any change in supply, demand or financing.
Cash volume spikes that coincide precisely with derivative expiry calendars.

What cash versus derivatives schemes are not

They are not hedging. Holding a derivative and trading the underlying to manage risk is the ordinary purpose of both markets.

They are not basis trading. Trading the relationship between cash and derivative prices is a recognised strategy, and it profits from convergence rather than from moving one leg.

They are not arbitrage. Arbitrage exploits a genuine discrepancy and eliminates it. This creates one.

They are not losing money in the cash market. Traders lose money constantly. The case requires the loss to be systematic, confined to reference periods, and aligned with a larger position elsewhere.

Frequently asked questions about cash versus derivatives schemes

Why does this work?: Because the derivative market is frequently far larger than the cash market that prices it. Moving a small market to change the value of a large position is arithmetically attractive whenever the ratio between them is big enough.
Is the cash trading itself unlawful?: Each trade is ordinary. What makes the course of conduct unlawful is its purpose — trading not to acquire a position but to move a reference price that pays off elsewhere. This is open-market manipulation, with the doctrinal difficulty that entails.
How is intent established?: From the loss. Cash trading that is systematically unprofitable, confined to reference-setting periods, and aligned with a much larger derivative position has no explanation other than the derivative.
Why is this harder to detect than single-market manipulation?: Because neither dataset shows it. The cash trading looks like a bad trader; the derivative position looks like an ordinary position. The scheme exists only in the relationship between them, which requires joining data across venues and often across regulators.
What is cross-market surveillance?: Systems and arrangements for combining order and position data across venues and instruments so that patterns spanning them become visible. It exists substantially because of this technique.
Does this happen in equities?: Yes. Trading a thinly traded underlying to affect the settlement of options or structured products written on it is the same structure. It also appears in single-stock futures and in index components around rebalance dates.
What about crypto?: Common, because derivatives volumes on major tokens frequently exceed spot volumes on the venues used as price references. Moving a reference exchange's thin book to affect much larger perpetual futures positions is a recognised pattern.
How large does the ratio need to be?: Large enough that the derivative gain exceeds the cash loss. In practice schemes have run at ratios from about five to one upward, and the ratio itself is a detection signal because both legs are reported.

Settlement price manipulation — Settlement price manipulation is trading to move an official settlement price, because that price determines margin, portfolio marks and the payoff on contracts many times larger than the trading itself.
Banging the close — Banging the close is trading heavily during the short window used to calculate a settlement price, in order to move that settlement in favour of a much larger position that references it.
FX fixing — FX fixing manipulation is trading during the short window used to calculate a daily currency benchmark, using advance knowledge of client orders that must be executed at that fix.
Options expiry pinning — Options expiry pinning is trading to hold a share price at or across an option strike at expiry, exploiting the fact that a few cents of movement decides whether large positions pay out or expire worthless.
Cornering — Cornering is acquiring control of the deliverable supply of an asset while holding a large long derivative position in it, so that short sellers cannot obtain the asset and must settle on the cornerer's terms.

Terms defined on this page

Cash Market · Spot Market · Basis · Cross Market Surveillance · Arbitrage · Notional Amount

Sources

CFTC Rule 180.1 — Electronic Code of Federal Regulations
Commodity Exchange Act § 9 — Cornell Legal Information Institute
SEC Rule 10b-5 — Electronic Code of Federal Regulations

Reviewed September 7, 2026. Every statute link points at the primary text. If something here is wrong, tell us — corrections are logged in public.