Officials from the UK, the Commodity Futures Trading Commission (CFTC) and the Chicago Mercantile Exchange (CME) have hit back at alleged abuse by a high-frequency trader with a high-frequency action of their own.
High-frequency trader Michael Coscia, owner of New Jersey-based Panther Energy Trading, was hit with five fines and disgorgement orders from the CFTC, the UK and derivatives market owner CME Group on allegations of market manipulation on two continents.
US regulator the CFTC levied a fine of $1.4 mn on the trader for a practice known as ‘spoofing’, which uses a computer algorithm to rapidly place and cancel bids and offers in an effort to generate the impression of intense market interest. The CFTC also ordered Coscia to disgorge $1.4 mn in profits.
The Financial Conduct Authority (FCA) in the UK levied a $900,000 fine on Coscia, saying it was its first ever action against a high-frequency trader. The CME fined Coscia $800,000 and ordered him to disgorge $1.3 mn in profits made in a series of trades between August and October 2011.
‘While forms of algorithmic trading are, of course, lawful, using a computer program that is written to spoof the market is illegal and will not be tolerated,’ says David Meister, the CFTC’s enforcement director, in a press release. ‘We will use the Dodd Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms.’
The FCA says Coscia’s strategy involved placing a small order on one side of the order book, followed by several large orders on the others side to ‘create a false and misleading impression of liquidity.’ Execution of the small order would then trigger cancellation of the large orders. Coscia would then repeat the strategy on the other side of the order book.
‘Coscia received a 30 percent discount on the fine by agreeing settlement under the FCA’s executive settlement procedures; otherwise he would have been fined just over $1.15 mn,’ the FCA adds.
