France Fines Euronext, Virtu for Stock Manipulation in 2009

  • Euronext, Virtu each fined 5 million euros by the AMF
  • Euronext exchange plans to appeal the AMF's decision

France’s regulator fined stock-exchange operator Euronext NV and high-speed trading firm Virtu Financial Inc. 5 million euros ($5.4 million) each for market manipulation in 2009.

Virtu was fined for “market manipulation and ignoring Euronext market rules,” while Euronext Paris was penalized for “failing to meet its obligation to operate with neutrality and impartiality,” the Autorité des Marchés Financiers said Tuesday in a statement.

Euronext said in a statement that it plans to appeal, describing the decision as “totally disproportionate and completely anachronistic.” Virtu’s chief executive officer, Douglas Cifu, said he was “disappointed” by the decision and intends to “vigorously pursue our rights of appeal under French and EU law.”

The AMF investigated 27 shares listed on Euronext Paris between late July and early September of 2009, when Euronext was part of NYSE Euronext and Virtu had yet to acquire Madison Tyler Holdings LLC, the subsidiary examined by the French authorities.

The AMF said Madison Tyler’s strategy involved finding the best bid or offer for a security on a platform, typically Euronext, before placing four passive orders at slightly different prices on four other venues. After one order was executed, it would cancel the remaining three. The operations took place in milliseconds, and algorithms constantly placed and canceled orders in multiple order books.

‘Misleading Indications’

Madison Tyler’s trading practices, involving large volumes of messages, “were likely to have given false or misleading indications as to the supply and demand for those financial instruments, constituting a market manipulation,” the AMF’s enforcement committee said.

The AMF didn’t object to the high-frequency trader’s strategy. However, only Madison Tyler benefited during the period investigated, the AMF said. The high volume of orders could have disrupted the market, and other participants may not have realized that the “intense activity” in order books came from a single participant.

Virtu’s Cifu said he firmly believes the activity “conducted by Madison Tyler’s European subsidiary in 2009 complied fully with applicable law and regulation.”

The regulator says Euronext favored Madison Tyler by exempting it from limits on the volume of orders. Euronext didn’t operate “with neutrality and impartiality,” thus breaching regulations.

System Limitations

Before 2009, Euronext had a policy of fining participants for excessively high order-to-trade ratios. This was because of trading system limitations, according to Euronext Paris Chief Executive Office Anthony Attia.

As high-speed, automated trading proliferated, Euronext upgraded its technology. It tested increasing its order-to-trade ratio using a pilot program, in which Madison Tyler participated. Euronext says it lifted the ratio for all participants in 2010.

“In no event did it ever compromise the market’s integrity when, in 2009, it deployed pilot programs linked to the new high frequency trading practices then beginning to appear on European markets,” Euronext said in the statement.

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