Commodity manipulating trader fined

DollarsA trader who made millions of US dollars by moving the price of commodities, ranging from oil to wheat, has been fined around 3.1 million US dollars (£2 million) by authorities in the UK and the US.

Michael Coscia wrote a computer program which placed and quickly cancelled bids to manipulate the price of commodities, an illegal process known as "layering" and "spoofing". Regulators also ordered US-based, high-frequency trader Coscia to repay about 2.7 million US dollars (£1.8 million) in profits.

The Financial Conduct Authority (FCA) said Coscia made about £280,000 of profit by placing thousands of orders for oil futures on the London-based IntercontinentalExchange Futures Europe exchange (ICE) in the six weeks from September 6, 2011.

Coscia's orders, traded and cancelled within miliseconds, earned him profits at the expense of other traders using automated systems.
The FCA fined Coscia about 903,000 US dollars (£598,000), while US regulator the Commodities and Futures Trading Commission and the Chicago Mercantile Exchange, a self-regulated exchange, also fined him 1.4 million US dollars (£913,000) and 800,000 US dollars (£521,000) respectively.

Tracey McDermott, FCA director of enforcement and financial crime, said Coscia cheated the market and other traders, and that his algorithm was "deliberately designed to abuse the market, undermining its integrity". She said: "This is unacceptable which is why we have taken tough action to punish Coscia and deprive him of any benefit he acquired."

Coscia's intricate strategy typically meant placing a small order which he intended to trade, while also making a series of large orders which he had no intention of completing.

The big orders were designed to give the impression of high demand or availability of those commodities, prompting the market to trade his smaller order. His program then immediately cancelled the big orders, and then made more abortive large orders in the opposite direction to ensure his small order booked a profit from the price swing.

Coscia, who has 25 years of market experience, traded futures contracts for commodities such as Brent crude oil, gas oil, Western Texas Intermediate, natural gas, corn, soybean and wheat. Futures contracts set an immediate price on an asset for delivery at a given time in the future, and fluctuate according to market pressures.

Coscia's New Jersey-based firm Panther Energy Trading was also sanctioned and fined by US regulators. The fine is the first by new City watchdog the FCA against a high-frequency trader, which said it would have been higher if he had not agreed to settle.