NEW YORK (AP) -- A federal regulator fined Panther Energy Trading $2.8 million for "spoofing" trades and banned the firm from trading for one year.
The Commodity Futures Trading Commission said Monday that the high-speed trading firm, based in Red Bank, N.J., and its owner Michael Coscia manipulated markets through allegedly placing orders that it never planned on executing. CFTC officials said it's the first time the CFTC used new powers under the Dodd-Frank financial overhaul law, passed in 2010. That law, enacted in response to the 2008 financial crisis, gave the agency powers to stop "disruptive trading practices."
Panther Energy Trading settled with the CFTC without admitting or denying the allegations. Panther Energy will pay a $1.4 million penalty and return $1.4 million in trading profits.
So-called high-frequency trading firms have computers that can place trades in fractions of a second, giving them an edge in buying or selling stocks. The speed also can disrupt the system when there are errors.
High-frequency trading now is estimated to account for more than 50 percent of all U.S. stock trading. High-speed trading came under public scrutiny following the "flash crash" of May 6, 2010, when a glitch erased 600 points from the Dow Jones industrial average in five minutes.
The CFTC said that between August and October 2011, Panther Energy Trading used a computer algorithm to place bids for crude oil, corn and other contracts before quickly cancelling them. A small order to sell would be followed by large orders to buy, creating "the impression that there was significant buying interest," according to the CFTC. The agency alleged that Panther Energy Trading would complete the order to sell then cancel the offer to buy.
"While forms of algorithmic trading are of course lawful, using a computer program that is written to spoof the market is illegal and will not be tolerated," David Meister, the CFTC's enforcement director, said in a statement. "We will use the Dodd Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms."
CFTC Commissioner Bart Chilton said spoofing "sends false signals to markets in order to lure prey and game the system."
With high-speed technology, "false market signals take place within milliseconds," Chilton said in a statement. "The good news is that regulators around the world are starting to catch up with the cheetah traders and we are shutting them down when they violate the law."
The CFTC said Panther Energy Trading made illegal trades in 18 different contracts, including stock indexes, foreign currency, and agricultural futures.