CME 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 Michael Coscia neither admitted nor denied the rule violations upon which the penalty is based, on July 18, 2013, a Panel of the CME Business Conduct Committee (“Panel”) found that between August 15, 2011, and October 18, 2011, Michael Coscia (“Coscia”), owner of Panther Energy Trading, LLC (“Panther”), conceived of, participated in, and directed the operation of 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 misled market participants, including other algorithmic traders, and exploited that deception for Panther’s benefit.
The Panel found that throughout the subject timeframe, Coscia and his Panther employees 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, the 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 the 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, Coscia permitted multiple Panther employees to execute transactions using six TAG 50 User IDs registered to him.
The Panel concluded that by engaging in the foregoing conduct, Coscia violated CME 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 Coscia violated CME Rule 576 by allowing multiple Panther employees to execute transactions using TAG 50 User IDs registered to him.
In consideration of the offer of settlement:
1. Coscia was fined $200,000 ($76,760 of which is allotted to CME);
2. Coscia was ordered to serve a six month bar from: membership privileges on any CME Group Inc. exchange; access to all CME Group Inc. trading floors; and direct and indirect access to all electronic trading and clearing platforms owned or controlled by CME Group Inc., including CME Globex. The suspension shall run from July 22, 2013, through and including January
3. Coscia and Panther Energy Trading, LLC, jointly and severally, were ordered to pay $1,312,947.02 in disgorgement ($525,178.81of which is allotted to CME).
July 22, 2013