Athena Capital Research LLC used $40 million to rig prices of thousands of stocks including EBay Inc. for at least six months in 2009, U.S. regulators said today when fining the high-speed trading firm $1 million.
Using a system dubbed “Gravy,” Athena manipulated shares of Nasdaq-listed stocks, undermining the exchange operator’s end-of-day procedures for reducing price volatility, according to the Securities and Exchange Commission. With “high-powered computers, complex algorithms and rapid-fire trades,” the New York-based firm tainted closing prices used by fund managers to track their performance, the SEC said.
Athena is the regulator’s first market manipulation case against a firm engaged in high-frequency trading, an industry besieged by accusations that it cheats slower investors. Following more than a decade of regulatory changes spurred by the SEC as well as technological improvements, the firms have displaced humans as the primary traders in many markets including the $22 trillion U.S. equity business.
“Traders today can certainly use complex algorithms and take advantage of cutting-edge technology, but what happened here was fraud,” Andrew J. Ceresney, director of the SEC’s division of enforcement, said today in a statement announcing the allegations.
Athena didn’t admit or deny any wrongdoing in settling the case.
From at least June 2009 through December of that year, Athena placed large transactions for stocks in the final two seconds of Nasdaq Stock Market trading, right before 4 p.m. New York time, driving prices “slightly higher or lower,” according to the SEC. “The manipulated closing prices allowed Athena to reap more reliable profits from its otherwise risky strategies.”
Athena deployed about $40 million into the manipulation scheme, the SEC said. Despite Athena’s small size, “it dominated the market for these stocks in the last few seconds,” according to the regulator’s order. “Its trades made up over 70 percent of the total Nasdaq trading volume of the affected stocks in the seconds before the close of almost every trading day.”
Athena targeted situations where buyers and sellers of Nasdaq stocks were out of balance, the SEC said. Through its strategy, Athena manipulated the daily closing auction, the commission said. That process sets end-of-day levels for Nasdaq stocks, information used by fund managers to track their performance.
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