SEC accuses high frequency trading firm of manipulating closing price of thousands of stocks

A trader works on the floor of the New York Stock Exchange.
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A trader works on the floor of the New York Stock Exchange.

The Securities Exchange Commission on Thursday charged a New York-based trading firm of manipulating the closing price of thousands of Nasdaq-listed stocks from June to December 2009.

The investigation found that Athena Capital Research used an algorithm to engage in a practice known as "marking the close," in which stocks are bought or sold near the end of the trading day to impact their closing price, a release said.

"The massive volumes of Athena's last-second trades allowed Athena to overwhelm the market's available liquidity and artificially push the market priceand therefore the closing pricein Athena's favor. Athena was acutely aware of the price impact of its algorithmic trading, calling it 'owning the game' in internal e-mails," the SEC wrote in a release.

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The SEC claims Athena developed strategies to dominate trade in the last few seconds of a trading day. These trades made up more than 70 percent of the volume of these stocks in the run-up to the close on the Nasdaq.

Without admitting or denying the findings, Athena has agreed to pay a $1 million penalty to settle the case, the SEC's first on high frequency trading manipulation.

The trading firm said in a release that it believed its trading activity "helped satisfy market demand for liquidity during a period of unprecedented demand for such liquidity." Athena added that it stopped running the trading strategy several years ago as those market needs diminished.

Luxoft benefiting from HFT trend?
Luxoft benefiting from HFT trend?   

During the period of investigation, the assets under management of the fund trading these strategies were about $40 million, the SEC said.

"This is very disgusting. [I'm] very shocked that this was a $1 million fine," partner and co-founder of Themis Trading Sal Arnuk said, emphasizing that he is not an insider in Athena.

He noted that the activities in question were by executives of a small firm "during the heyday" of the financial crisis and were not connected to current market movements. SEC spokesperson Andrew Ceresney agreed.

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"Fear of regulation has been cleaning up the market. Leave it to the big boys who are appropriately capitalized," Arnuk said. "Not all high-frequency traders are created equal."