An unprecedented jury decision in Chicago could dramatically influence how algorithmic trading is conducted from now on in the U.S and beyond. On Tuesday, Michael Coscia of Panther Energy Trading LLC was found guilty of all twelve counts against him – all related to charges of manipulating or disrupting the markets and spoofing.
The importance of this case to the wider financial markets is major and especially critical to the field of High-Frequency Trading (HFT). It will likely serve as a precedent in all American courts regarding the legality of HFT. It defines spoofing as deceptively flooding the market with orders the trader does not intend to complete – manipulating other traders – and not as legitimate price discovery.
Despite being considered in the grey area legally and a very complex technological issue, it didn’t seem to take long for the court to decide on the case. Just one hour of deliberations was enough for the jurors to convict Coscia in the U.S Federal court. The speed with which this was implemented sends a clear signal to the HFT industry that such practices are not ambiguous, but just simply wrong, in the eyes of the public – and that they should probably try to avoid having this issue brought before a court again.
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A further issue that stands out about this case is that it was already handled by the U.S. Commodity Futures Trading Commission (CFTC). In 2013 Coscia was fined $2.8 million for the same charges by the CFTC, but that did not end the investigation and criminal proceeding as is custom in such cases.
The authorities were alerted about the suspicious orders of Panther Energy Trading by the Intercontinental Exchange (ICE) and CME, as well as some competing HFT firms in the same venues. The trades involved both FX and commodity futures, specifically gold, EUR, GBP, copper, soybeans and soy oil.
Coscia now faces a possible jail time of 25 years and a $250,000 fine for six fraud counts , and another 10 years in jail and a $1 million fine for the six spoofing counts. His sentencing is expected on March 2016.