WASHINGTON — A high-speed trading firm in New Jersey and its owner agreed to pay $2.8 million to settle federal charges that they used a disruptive market trading practice that was banned by Congress when it passed a major financial overhaul measure three years ago.
The Commodity Futures Trading Commission announced the deal Monday with Panther Energy Trading and Michael Coscia, who allegedly used sophisticated computer algorithms to illegally place and quickly cancel bids, a method known as “spoofing.” The CFTC action, which awaits court approval, marks the first time that federal authorities have used an enforcement tool granted them by the 2010 Dodd-Frank financial regulation law, which banned spoofing.
The use of complex algorithms to make trades in the blink of an eye has come to dominate the market, attracting scrutiny from regulators in this country and abroad. The Securities and Exchange Commission and the CFTC have been studying the practices employed for these high-frequency traders. Last week, the Financial Industry Regulatory Authority sent letters to nearly a dozen such trading firms, asking for details on the controls they use to keep algorithms from malfunctioning.
Panther and Coscia agreed to pay a $1.4 million fine, return $1.4 million in ill-gotten gains and stop trading for a year as part of the settlement, but they did not admit to wrongdoing. Neither party could be immediately reached for comment.