Bloomberg News

Panther, Coscia Fined Over High-Frequency Trading Algorithms

July 22, 2013

Panther Energy Trading LLC and sole owner Michael Coscia will pay $4.5 million to U.S. and U.K. regulators to resolve allegations that they used high-frequency trading algorithms that manipulated commodities markets.

Panther, based in Red Bank, New Jersey, and Coscia used a computer algorithm that placed and quickly canceled bids and offers in futures contracts for commodities including oil, metals, interest rates and foreign currencies, the U.S. Commodity Futures Trading Commission said in a statement today. The enforcement action was the CFTC’s first under Dodd-Frank Act authority to target disruptive trading practices.

“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,” the agency said its statement.

Panther and Coscia must pay $2.8 million in fines and disgorgement of profits to the CFTC, $903,000 to the U.K. Financial Conduct Authority and $800,000 in fines to CME Group (CME:US) Inc., owner of the world’s largest derivatives market. The CFTC also banned Panther and Coscia from trading for a year.

High-frequency trading has come under increased regulatory scrutiny following the so-called flash crash in May 2010, when the Dow Jones Industrial Average briefly lost almost 1,000 points. The European Union reached a provisional deal last month on an overhaul of financial market rules that would toughen oversight of high-frequency trading and push more transactions onto regulated platforms.

Egregious Violation

Bart Chilton, one of three Democrats among the CFTC’s four commissioners, said in a statement that the trading ban should have been longer than one year. The firm’s conduct was an “egregious violation” of commodities law, he said, “and warrants the imposition of a much more significant trading ban to protect markets and consumers, and to act as a sufficient deterrent to other would-be wrongdoers.”

The Financial Industry Regulatory Authority, the U.S. brokerage industry’s self-regulator, is investigating whether high-frequency traders have established controls to ensure algorithms don’t malfunction and cause broader harm to markets. Finra sent letters last week to about 10 trading firms asking nine detailed questions about how they use algorithms, according to George Smaragdis, a spokesman for the agency.

Dodd-Frank Prohibitions

The Panther Energy Trading case was the first to use Dodd-Frank regulations barring disruptive trading practices, including spoofing of orders by bidding with an intent to cancel before a trade is conducted, the CFTC said. The 2010 law overhauled market oversight after largely unregulated trades helped fuel the 2008 credit crisis.

“I would expect more CFTC investigations and actions related to ‘disruptive trading practices,’ which will further add to the regulatory scrutiny that so-called ‘high-frequency traders’ currently face,” Stephen Humenik, a lawyer at Covington & Burling LLP, said in an e-mail.

Panther and Coscia engaged in spoofing from August 8, 2011, to October 18, 2011, related to 18 futures contracts, according to the CFTC. The firm accumulated $1.4 million in profits by using the algorithm. Panther’s automated trading system entered 400,000 orders on CME’s electronic platform that were canceled 98 percent of the time and never intended to be completed, CME said in a statement announcing its own disciplinary action.

Richard Reibman, who represents Panther and Coscia as a Chicago-based partner at Thompson Coburn LLP law firm, declined to comment on the facts of the case. “I would say from an industry perspective that prop trading firms are adapting to the fact that the Dodd-Frank Act reaches beyond swaps regulation,” he said in a telephone interview today.

To contact the reporters on this story: Lindsay Fortado in London at; Silla Brush in Washington at

To contact the editors responsible for this story: Anthony Aarons at; Maura Reynolds at

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