PANTHER ENERGY TRADING, LLC
CBOT RULE VIOLATIONS:
Rule 432. GENERAL OFFENSES
It shall be an offense to:
B.2. engage in conduct or proceedings inconsistent with just and equitable principles of trade.
Q. commit an act which is detrimental to the interest of welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange.
T. engage in dishonorable or uncommercial conduct.
Rule 576 IDENTIFICATION OF GLOBEX TERMINAL OPERATORS
Each Globex terminal operator shall be identified to the Exchange, in the manner prescribed by the Exchange, and shall be subject to Exchange rules. If user IDs are required to be registered with the Exchange, it is the duty of the clearing member to ensure that registration is current and accurate at all times. Each individual must use a unique user ID to access Globex. In no event may a person enter an order or permit the entry of an order by an individual using a user ID other than the individual’s own unique user ID.
Pursuant to an offer of settlement in which Panther Energy Trading, LLC neither admitted nor denied the rule violations upon which the penalty is based, on July 18, 2013, a Panel of the CBOT Business Conduct Committee (“Panel”) found that between August 15, 2011, and October 18, 2011, Panther Energy Trading, LLC (“Panther”) designed and operated an automated trading system (“ATS”) that entered and canceled large orders that were not intended to be traded. The Panel also found that the ATS employed by Panther misled market participants, including other algorithmic traders, and exploited that deception for Panther’s benefit.
The Panel found that throughout the subject timeframe, Panther’s ATS executed a strategy wherein the ATS entered one small order at the best bid or offer and subsequently entered several large orders at various price levels on the opposite side of the order book to create the appearance of an imbalance in buy/sell pressure. The Panel found that during the subject time period, Panther’s ATS entered over 400,000 large orders on the CME Globex® electronic trading platform in 17 markets across CME Group Inc. exchanges. These orders were fully canceled over 98% of the time and, by design, were not intended to be traded.
Specifically, the Panel found that Panther’s ATS entered a small order to buy (sell) at the best bid (offer). The ATS then entered three to four large orders to sell (buy) at various price levels, thereby creating the appearance of sell (buy) pressure in the market and inducing market participants to trade opposite the buy (sell) order. Once the long (short) position was initiated, the ATS immediately canceled the three to four large sell (buy) orders. Subsequently, in order to liquidate the established long (short) position, the ATS entered orders to sell (buy) at the best offer (bid). The ATS then entered three to four large buy (sell) orders at various price levels on the opposite side of the order book, thereby creating the appearance of buy (sell) pressure in the market and inducing market participants to trade opposite the sell (buy) order. Once the long (short) position was liquidated, the ATS immediately canceled the three to four large outstanding buy (sell) orders. The Panel concluded that this strategy enabled Panther to consistently buy the best bid and sell the best offer, resulting in substantial profits during the subject time period.
In determining that the large orders were entered without the intent to be traded, the Panel considered numerous factors, including the significant imbalance in the quantities entered on the opposing sides of the market, the percentage of large orders canceled, and the exposure time of the canceled orders.
The Panel further found that during the subject time period, multiple Panther employees executed transactions using six TAG 50 User IDs registered to Panther owner and member, Michael Coscia.
The Panel concluded that the foregoing conduct violated CBOT Rules 432.B.2. (to engage in conduct or proceedings inconsistent with just and equitable principles of trade), 432.Q. (to engage in an act which is detrimental to the interest or welfare of the Exchange or to engage in any conduct which tends to impair the dignity or good name of the Exchange), and 432.T. (to engage in dishonorable or uncommercial conduct). The Panel also concluded that Panther violated CBOT Rule 576 by allowing multiple employees to execute transactions using TAG 50 User IDs registered to Panther’s owner.
In consideration of the offer of settlement:
1. Panther was fined $600,000 ($191,100 of which is allotted to CBOT); and
2. Panther and Michael Coscia, jointly and severally, were ordered to pay $1,312,947.02 in disgorgement ($393,884.11 of which is allotted to CBOT).
July 22, 2013