Chicago's High-Speed Guilty Verdict for N.J. Spoofer

In just one hour on November 3, 2015, in the first federal criminal prosecution for disruptive trading of high-frequency trading (HFT) spoofing, a Chicago jury found Michael Coscia, of Panther Energy Trading in New Jersey, guilty on all counts of spoofing on the CME.

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In the legal world, this timeline constitutes low-latency justice for disruptive HFT:

  • 1990s: Algorithmic trading takes hold among pioneering firms (e.g., Archipelago, Long-Term Capital Management), eventually to be branded “Chicago style” trading.
  • 2000s: Algorithmic trading goes high-speed, particularly in U.S. cash equities and Treasurys.
  • 2010: Dodd-Frank Act Section 747 amends the Commodities Exchange Act (CEA):

(5) DISRUPTIVE PRACTICES. It shall be unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity that—
(A) violates bids or offers;
(B) demonstrates intentional or reckless disregard for the orderly execution of transactions during the closing period; or
(C) is of the character of, or is commonly known to the trade as, "spoofing" (bidding or offering with the intent to cancel the bid or offer before execution).

It’s always a good thing for prosecutors when they get a guilty verdict in the first case brought under a new law, let alone in one hour, and make no mistake, this is a criminal conviction with a maximum sentence of 25 years in prison. Undoubtedly, the courts (and the markets) haven’t seen the last of this case, but if upheld it may become the signal event in the dampening of HFT beyond legitimate market-making. 

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