FCA fines US based oil trader US $903K for market manipulation

This is the first time the FCA has taken enforcement action against a High Frequency Trader, and reflects the FCA’s objective of enhancing the integrity of the UK’s financial markets.

Between 6 September 2011 and 18 October 2011 Coscia used an algorithmic programme of his own design to instigate an abusive trading strategy known as “layering”.

During this time, Coscia placed thousands of false orders for Brent Crude, Gas Oil and Western Texas Intermediate (WTI) futures from the US on the ICE Futures Europe exchange (ICE) in the UK.

Taking advantage of the price movements generated by his layering strategy, Coscia made a profit of US $279,920 over the 6 week period of trading at the expense of other market participants - primarily other High Frequency Traders or traders using algorithmic and/or automated systems.

Coscia is not a member of ICE or an FCA Approved Person, and traded from the US through a Direct Market Access (DMA) provider.  The penalty reflects the serious nature of the deliberate market abuse and the significant impact on ICE, as well as depriving Coscia of the financial benefit derived from this activity. 

Tracey McDermott the FCA’s Director of Enforcement and Financial Crime said:

“Mr Coscia was cheating the market and other participants.  High Frequency Trading and the use of algorithms are an important and commonplace part of the markets nowadays but in this case these techniques were deliberately designed to abuse the market, undermining its integrity.  This is unacceptable, which is why we have taken tough action to punish Coscia and deprive him of any benefit he acquired.”

Coscia received a 30% discount on the fine by agreeing settlement under the FCA’s executive settlement procedures; otherwise Coscia would have been fined just over US $1.15 million (£764K).  

The US regulator, the Commodities and Futures Trading Commission (CFTC) and the Chicago Mercantile Exchange (CME) are announcing today that they have imposed fines for similar market manipulation by Coscia on US markets. The FCA has worked closely with ICE, the CFTC and CME to bring this action against Coscia and would like to thank them for their co-operation. 

Notes to Editors

1. The Final Notice[1] for Mr Coscia. An appendix[2] contains an animated illustration of the abusive trading pattern.
2. High Frequency Trading describes the use of automated systems to place market orders at a much faster rate than possible if orders are placed manually.
3. Coscia’s layering strategy typically meant placing a small order which he intended to trade on one side of the order book followed by a series of large orders on the opposite side of the order book which were not genuine. These larger orders- typically 20 times the average size of orders placed by other market participants – were designed to create a false and misleading impression of liquidity for those products, and induce the market to trade the smaller orders. The execution of the small order would then trigger the immediate cancellation of the large orders.  This pattern would then be repeated on the opposite side of the order book in order to make a profit from price movements generated by the trading strategy.
4. The FSA’s publication Market Watch, Issue No.33[3] provides FSA commentary on Manipulation of the order book – “layering and spoofing”;
5. An approved person is an individual who has been approved by the FCA and/or the PRA to perform one or more controlled functions on behalf of an authorised firm. Find out more information about the FCA’s Approved Persons regime.
6. Direct Market Access is a service offered by stockbrokers that are members of exchanges that offers investors the opportunity to place orders directly on the exchange order book.
7. In August 2011, the FSA issued a Decision Notice to Swift Trade Inc[4] with a financial penalty of £8m for similar manipulative trading practices. The Upper Tribunal issued its decision in January 2013 which agreed with the FSA and found as a matter of fact that the layering strategy adopted was abusive. The matter has been referred to the Court of Appeal.
8. On the 1 April 2013 the Financial Conduct Authority (FCA) became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA).
9. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
10. You can find more information about the FCA, as well as how it is different to the PRA.