CFTC charges trading firm under new 'antispoofing' authority
A high frequency energy trading firm is being charged by federal regulators Monday with manipulating markets through "spoofing," an increasingly frequent scheme in which false bids are submitted and then pulled back, the Commodities Futures Trading Commission said.
The civil action against Panther Energy Trading of Red Bank, N.J., and owner Michael J. Coscia, is the first time the CFTC has used the anti-spoofing authority, which is contained in Dodd-Frank law.
Separately, Britain's Financial Conduct Authority announced that it has fined Coscia, $903,176 (£597,993) for manipulation of commodities markets in the U.K.
In announcing the proposed settlement of the charges, the CFTC said the company will pay $2.8 million in fines and Coscia will be banned from trading for a year.
The company could not be reached for comment because there was no answer at its office.
The liquid market manipulation occurred in 18 U.S. contracts, including natural gas, crude, metals, foreign currencies and financial indexes on CME Group's Globex trading platform from Aug. 8, 2011, through Oct. 18, 2011, the agency said.
Spoofing, a form of disruptive trading that is becoming more common with the entrance of high speed trading, is a scheme in which false price bids are entered and then pulled back before anyone can execute them. It's done to create "liquidity" at certain prices for big offers, and then make money from smaller offers, CFTC Commissioner Bart Chilton said.
In Panther's case, the CFTC said, the company and Coscia would place a relatively small order to sell futures they wanted to execute, then quickly followed with several large buy orders at successively higher prices that they intended to cancel. By placing the large buy orders, they sought to give the market the impression that there was significant buying interest, making their small order more valuable, the agency said.
"Spoofing sends false signals to markets in order to lure prey and game the system," he said.
"We allege Panther used high speed ... technology to fake out other traders and turn a profit," Chilton said. "With ultra-fast cheetah technology, false market signals take places within milliseconds. The good news is that regulators around the world are starting to catch up with the [high speed] traders, and we are shutting them down when they violate the law."
The settlement faces court approval.
In the U.K., the FCA said Coscia used an algorithmic program for thousands of false orders for oil trades on the ICE Futures Europe exchange between Sept. 6, 2011 and Oct. 18, 2011.
"Mr Coscia was cheating the market and other participants," Tracey McDermott, the FCA's director of enforcement and financial crime, said in a statement. "High Frequency Trading and the use of algorithms are an important and commonplace part of the markets nowadays but in this case these techniques were deliberately designed to abuse the market, undermining its integrity."
—By Marty Steinberg, CNBC.com.