As part of the 2010 Dodd-Frank Wall Street Reform and Consumer
Protection Act, Congress amended the Commodities Exchange Act (CME)
to add a new
section of Prohibited Transactions entitled “Disruptive
Practices.” Those prohibited practices include any trading
“commonly known as ‘spoofing,’” i.e., to
conduct bid or offer activity for any product traded on a
Designated Contract Market (DCM) or Swap Exchange Facility (SEF)
with the intent to cancel the bid or offer before execution.
According to CFTC, bids or offers designed to overload a
quotation system, delay another person’s trade execution,
give the appearance of false market depth, or create artificial
price movements, unlawfully disrupt fair and equitable trading and
are, therefore, unlawful.
On July 22, 2013, the CFTC entered its
first order finding a violation of the anti-spoofing provision.
In that order, the CFTC found that Panther Energy Trading LLC and
its owner, Michael J. Coscia, placed algorithmic bids and offers in
18 futures contracts on the CME Group’s electronic trading
platform that they intended to cancel prior to execution. As the
CFTC further stated, by placing large buy-and-sell orders they had
no intention of executing, Panther Energy and Coscia sought to give
the market the impression that there was significant market
interest in the futures contracts. The subsequent market price
movement in reaction to these orders allowed Panther Energy to
profit on the relatively small counter bids and offers it
simultaneously executed at the time it placed, and then canceled,
its large orders, amassing a $1.4 million net profit in a little
more than two months. As a result of this violation, the CFTC
assessed a $1.4 million civil money penalty, ordered disgorgement
of the $1.4 million profit, and issued a one-year trading ban
against Panther Energy and Coscia. In a press release, the CFTC
further noted that the United Kingdom’s Financial Conduct
Authority – with whom the CFTC cooperated in investigating
the spoofing activity – imposed a penalty of approximately
$900,000 against Coscia, relating to similar market-abuse
activities on the ICE Futures Europe exchange.
The order in the Panther Energy Trading matter comes amidst
several other high-profile CFTC enforcement actions. Consistent
with CFTC Enforcement Director David Meister's expressed desire
to “bring high-impact cases that [can] influence market
behavior,” the CFTC recently has undertaken significant
enforcement actions against marquee respondents such as, for
example, the multi-billion-dollar enforcement action against
several multi-national banks for an alleged manipulation of LIBOR,
as well as the June 2013 action against former New Jersey Governor
Jon Corzine for the alleged misuse of nearly 1 billion dollars in
customer funds. As Enforcement Director Meister has further
commented, the additional powers the Dodd-Frank legislation gave
the CFTC have "changed the game" by broadening the
CFTC’s jurisdiction, expanding reporting requirements,
prohibiting additional trading practices, and easing intent
requirements for proving certain CEA violations. As the recent CFTC
actions demonstrate, the agency is intent on using these
This article is presented for informational purposes only
and is not intended to constitute legal advice.
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