CFTC decides on landmark case

By Marc Castro

Jul 22, 2013 04:59 PM EDT

A successful case was filed by the US Commodity Futures Trading Commission against two entities. The case alleged that the two parties engaged in the disruptive process called 'spoofing'. 

This is a landmark case as it is the first instance that a trading firm has been legally prosecuted under the prohibitions on spoofing as laid out in the Dodd-Frank Act. Spoofing is defined as the illegal practice of bidding or offering to purchase commodities with an intention to cancel the order before the execution of its terms. 

The said case was filed in collaboration with the British Financial Conduct Authority. The method used by the respondents in the case was algorithmic trading, as this opens and closes positions at extremely high speeds, providing an unfair advantage over other traders in the market.

In this case, Panther Energy Trading LLC and Michael J. Coscia, the firm's principal, used a computer algorithm that placed and cancelled bids offering futures in contracts. The algorithm illegally and repeatedly offered and then cancelled these offers in the market. The activity took place from August 8, 2011 until October 18, 2011 using the CME Group Globex trading platform. 

In its decision, the CFTC ordered Panther and Coscia to pay a civil penaly amounting to US$1.4 million. It also required to disgorge US$1.4 million in trading profits and banned Panther and Coscia from any CFTC entity trading for one year from the date of the order.

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