In the first federal prosecution of its kind, a high-frequency trader was indicted for allegedly manipulating commodities futures prices and illegally profiting nearly $1.6 million as a result of trading orders he placed through CME Group and European futures markets in 2011. The defendant, MICHAEL COSCIA, was the manager and sole owner of the former Panther Energy Trading LLC, of Red Bank, N.J., which he formed in 2007. Coscia, 52, of Rumson, N.J., a registered commodities trader since 1988, was charged with six counts of commodities fraud and six counts of “spoofing” in a 12-count indictment returned yesterday by a federal grand jury, Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation, announced today. The indictment marks the first federal prosecution nationwide under the anti-spoofing provision that was added to the Commodity Exchange Act by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Coscia will be arraigned on a date to be determined in U.S. District Court in Chicago. You will be reminded that the following description of this scam has been well covered here in my daily missives. Why did it take the government 4 years to take action? Between August and October 2011, Coscia allegedly defrauded participants in the CME Group and ICE Futures Europe markets. In August 2011, Coscia began a high-frequency trading strategy in which he entered large-volume orders that he intended to immediately cancel before they could filled by other traders, the indictment alleges. Coscia devised this strategy to create a false impression regarding the number of contracts available in the market, and to fraudulently induce other market participants to react to the deceptive market information he created, the indictment states. His strategy moved the markets in a direction favorable to him, enabling him to purchase contracts at prices lower than, or sell contracts at prices higher than, the prices available in the market before he entered and canceled his large-volume orders, it adds. Coscia then allegedly repeated this strategy in the opposite direction to immediately obtain a profit by buying futures contracts at a lower price than he paid for them, or by selling contracts at a higher price than he paid for them. Each such trade allegedly occurred in a matter of milliseconds. As a result of the aggregate of those fraudulent high-frequency trades, Coscia illegally profited approximately $1,592,867 over approximately three months, the indictment alleges. The indictment alleges that Coscia designed his programs to cancel the quote orders within a fraction of a second automatically, without regard to market conditions, even if the market moved in a direction favorable to the quote orders. He programmed the quote orders to cancel because he did not intend for them to be filled, but instead intended to trick other traders into reacting to the false price and volume information, it adds. Further, Coscia designed his programs to cancel all fraudulent and misleading quote orders immediately if any of them were even partially filled, because he intended them only to trick other traders into reacting to what appeared to be a substantial change in the market. After Coscia filled his trade order through the use of fraudulent and misleading quote orders, he immediately entered a second trade order on the other side of the market and repeated his steps with misleading quote orders, causing the second trade order to be filled. As a result, Coscia allegedly profited on the difference in price between the first and second trade orders. The indictment details an example through trades that Coscia placed milliseconds apart in the Euro FX market during the early morning on Sept. 1, 2011. By entering large orders that he intended to cancel at the time he placed them, and caused to be canceled before other traders could fill them, Coscia made a profit by buying 14 contracts at 14288 ticks and selling them at 14289 ticks less than one second later. The full indictment can be read here justice.gov/usao/iln/pr/chicago/2014/pr1002_01.html An interesting and detailed example of these trades can be read here nanex.net/aqck2/4371/coscia-appendix-1a.pdf and shows that the size of Mr. Coscias fake orders within the first 5 ticks of the bid/ask make up 87% of both the buy and sell orders. Hey, FBI man - this happens every day in the ES...and equities across the globe. Read Past Issues
Posted on: Fri, 03 Oct 2014 17:18:35 +0000
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