Accused Spoofing Trader Claims Orders Helped Market

  • Panther Energy's Coscia says he intended to trade every order
  • Trial is first under Dodd-Frank's ban on trader spoofing

The first trader to be tried on charges of spoofing told Chicago jurors that commodities orders he placed “improved the market for everyone” and that he tried to promote trading activity.

Michael Coscia, the head of Panther Energy Trading LLC, said repeatedly under questioning by prosecutors Friday that he intended to trade every order he placed in late 2011, even though more than 460,000 large orders he placed on CME Group Inc. exchanges were canceled.

“I intended to trade them and if they didn’t trade, I canceled them,” Coscia testified in Chicago federal court. He said he believed his orders improved the market by creating liquidity.

Coscia is accused of manipulating prices by placing a small order on one side of the market and then large orders on the opposite side. Once his small order was executed he canceled the larger orders. Prosecutors allege that he never intended to trade the large orders, a violation of the 2010 Dodd-Frank Act that made spoofing illegal.

In at times heated exchanges with Assistant U.S. Attorney Renato Mariotti, Coscia said he didn’t understand what Mariotti meant when he suggested that Coscia was trying to “move” the market.

No Trick

Asked by Mariotti whether he was only able to compete with large firms by tricking them by placing large orders in the market, Coscia said “I didn’t trick anybody.”

Coscia testified that he sometimes tried to create lopsided markets and that doing so promoted trading activity. A defense expert witness later testified that using a trading strategy of unbalanced orders in the market was common in the market-making business. 

“You want a lopsided market,” Coscia said.

Coscia told jurors he has been a trader for 27 years and was using computer programs to make trades in fractions of a second for about nine weeks. He said Thursday under direct examination that he learned about investing after his father won $55,000 on a $2 horse race bet and invested it in the market.

Cancellation Rates

After Coscia finished his testimony, his lawyers presented an analysis showing his cancellation rate for orders was lower than those of other high-speed trading firms.

Matthew Evans of Nera Economic Consulting was called as a defense witness to dispute prosecution claims Coscia placed and canceled an unusually high number of large orders to manipulate the market.

During one week in September, Coscia had a whole and partial fill rate of 2.1 percent for large orders compared with 0.48 percent for a group of other high-frequency trading firms, Evans said. Evans said on Monday that he compared Coscia’s activity with nine other firms.

For small orders, Coscia’s fill rate was 46.5 percent compared with 7.6 percent for high-speed traders. For large orders, Coscia’s cancellation rate was 97.9 percent compared with 99.9 percent for other high-frequency firms.

Evans said he based his analysis on data from CME. He is scheduled to resume his testimony on Monday, which may be the last day jurors hear from witnesses.

The case is U.S. v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois (Chicago).

(Corrects number of firms compared in 12th paragraph.)
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