The U.S. Commodity Futures Trading Commission (CFTC) issued an Order today filing and simultaneously settling charges against Panther Energy Trading LLC of Red Bank, New Jersey, and Michael J. Cosciaof Rumson, New Jersey, for engaging in the disruptive practice of “spoofing” by utilizing a computer algorithm that was designed to illegally place and quickly cancel bids and offers in futures contracts. The Order finds that this unlawful activity took place across a broad spectrum of commodities from August 8, 2011 through October 18, 2011 on CME Group’s Globex trading platform. The CFTC Order requires Panther and Coscia to pay a $1.4 million civil monetary penalty, disgorge $1.4 million in trading profits, and bans Panther and Coscia from trading on any CFTC-registered entity for one year.
According to the Order, Coscia and Panther made money by employing a computer algorithm that was designed to unlawfully place and quickly cancel orders in exchange-traded futures contracts. For example, Coscia and Panther would place a relatively small order to sell futures that they did want to execute, which they quickly followed with several large buy orders at successively higher prices that they intended to cancel. By placing the large buy orders, Coscia and Panther sought to give the market the impression that there was significant buying interest, which suggested that prices would soon rise, raising the likelihood that other market participants would buy from the small order Coscia and Panther were then offering to sell. Although Coscia and Panther wanted to give the impression of buy-side interest, they entered the large buy orders with the intent that they be canceled before these orders were actually executed. Once the small sell order was filled according to the plan, the buy orders would be cancelled, and the sequence would quickly repeat but in reverse – a small buy order followed by several large sell orders. With this back and forth, Coscia and Panther profited on the executions of the small orders many times over the period in question.
David Meister, the CFTC’s Enforcement Director, said, “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. 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 Order finds that Panther and Coscia engaged in this unlawful activity in 18 futures contracts traded on four exchanges owned by CME Group. The activity involved a broad spectrum of commodities including energies, metals, interest rates, agricultures, stock indices, and foreign currencies. The futures contracts included the widely-traded Light Sweet Crude Oil contract as well as Natural Gas, Corn, Soybean, Soybean Oil, Soybean Meal, and Wheat contracts.
In a related matter, the United Kingdom’s Financial Conduct Authority issued a Final Notice regarding its enforcement action against Coscia relating to his market abuse activities on the ICE Futures Europe exchange, and has imposed a penalty of approximately $900,000 against him. Furthermore, the CME Group, by virtue of disciplinary actions taken by four of its exchanges, has imposed a fine of $800,000 and ordered disgorgement of approximately $1.3 million against Coscia and Panther and has issued a six-month trading ban on its exchanges against Coscia.
The CFTC’s $1.4 million disgorgement will be offset by amounts paid by Panther and Coscia to satisfy any disgorgement order in CME Group’s disciplinary action related to the spoofing charged by the CFTC. As CME Group has represented to the Commission, disgorgement paid in the CME Group’s action will be used first to offset the cost of customer protection programs, and thereafter, if the disgorged funds collected exceed the cost of those programs, the excess will be contributed to the CME Trust to be used to provide assistance to customers threatened with loss of their money or securities. The CME Trust is prohibited from utilizing any of its funds for the purpose of satisfying any legal obligation of the CME.
The CFTC thanks the Financial Conduct Authority in the United Kingdom and the CME Group for their cooperation.
Separately, on May 28, 2013, the Commission issued guidance regarding disruptive trading practices. That guidance can be found at 78 FR 31890.
CFTC Division of Enforcement staff members responsible for this matter are Trevor Kokal, Stephen Painter, Jr., Nathan Ploener, Jordon Grimm, Manal Sultan, Lenel Hickson, Jr., Stephen Obie, and Vincent McGonagle.