The Financial Conduct Authority (FCA) has fined US-based high frequency trader Michael Coscia USD903,176 (GBP597,993) for deliberate manipulation of commodities markets.
This is the first time the FCA has taken enforcement action against a high frequency trader, and reflects the FCA’s objective of enhancing the integrity of the UK’s financial markets.
Between 6 September 2011 and 18 October 2011 Coscia used an algorithmic programme of his own design to instigate an abusive trading strategy known as “layering”.
During this time, Coscia placed thousands of false orders for Brent Crude, Gas Oil and Western Texas Intermediate (WTI) futures from the US on the ICE Futures Europe exchange (ICE) in the UK.
Taking advantage of the price movements generated by his layering strategy, Coscia made a profit of USD279,920 over the six week period of trading at the expense of other market participants – primarily other high frequency traders or traders using algorithmic and/or automated systems.
Coscia is not a member of ICE or an FCA Approved Person, and traded from the US through a Direct Market Access (DMA) provider. The penalty reflects the serious nature of the deliberate market abuse and the significant impact on ICE, as well as depriving Coscia of the financial benefit derived from this activity.
Tracey McDermott the FCA’s director of enforcement and financial crime, says: “Mr Coscia was cheating the market and other participants. High frequency trading and the use of algorithms are an important and commonplace part of the markets nowadays but in this case these techniques were deliberately designed to abuse the market, undermining its integrity. This is unacceptable, which is why we have taken tough action to punish Coscia and deprive him of any benefit he acquired.”
Coscia received a 30 per cent discount on the fine by agreeing settlement under the FCA’s executive settlement procedures; otherwise Coscia would have been fined just over USD1.15m (GBP764,000).
The US regulator, the Commodities and Futures Trading Commission (CFTC) and the Chicago Mercantile Exchange (CME) have imposed fines for similar market manipulation by Coscia on US markets.
