US and UK authorities are teaming up to crack down on market abuse. By working together, they have used their mutual powers to punish a small high-frequency trading company for attempting to rig commodity markets.
On Monday, the US Commodities and Futures Trading Commission, the UK Financial Conduct Authority and the Chicago Mercantile Exchange each fined Panther Energy Trading and one of its traders for manipulating future commodities markets on both sides of the Atlantic with algorithmic programmes in a three-month period.
Regulators in both countries have become increasingly concerned about potential market abuse from high-frequency trading, in which traders use ultrafast systems to trade across assets and continents far quicker than can be executed manually.
Panther made about $1.4m by using illegal practices such as spoofing and layering used to deliberately place and then quickly cancel large amounts of orders to manipulate the price of commodities and create a false impression of liquidity. The group would make thousands of false orders for crude oil, gas, soyabeans and wheat that they intended to cancel. The orders would underprice other offers, driving the market towards its selling price.
Cross-border investigations from the authorities that result in parallel enforcement actions are becoming increasingly common as US and UK regulators learn to work more closely together to penalise high-frequency trading practices. The CFTC ordered Michael Coscia, the trader at the centre of the allegations, to pay fines totalling $2.8m in trading profits, while CME Group imposed fines of $2.1m. The CFTC also banned Panther and Mr Coscia from trading on any of its registered entities for one year for offences in the US, while the FCA imposed a fine of $903,000 (£597,000) and six-month trading ban on its exchanges.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said: “Mr Coscia was cheating the market and other participants. 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. This is unacceptable, which is why we have taken tough action to punish Coscia and deprive him of any benefit he acquired.”
