What factors do the U.S. Commodity Futures Trading Commission (“CFTC”) and Department of Justice (“DOJ”) examine to determine whether spoofing violations have occurred for prosecution under the 2010 Frank-Dodd Act? How is this demonstrated in the context of the United States v. Coscia case?
SHORT ANSWER
Intent is the biggest factor in whether the CFTC and DOJ can successfully prosecute under the anti-spoofing laws. To prove an anti-spoofing violation has occurred, the prosecutor must show that the defendants systematically placed orders they didn’t intend to execute.
After settling civil charges with both the CFTC and the U.K.’s Financial Conduct Authority, Michael Coscia (“Coscia”), head of New Jersey-based high frequency trading (“HFT”) shop Panther Energy Trading (“Panther”), was charged with six counts of commodities fraud and six criminal violations of the anti-spoofing provision of the Commodity Exchange Act (“CEA”). The …show more content…
The CFTC’s former Enforcement Director, David Meister, stated “while forms of algorithmic trading are of course lawful, using a computer program that is written to spoof the market is illegal and will not be tolerated. We will use the Dodd-Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms.”
While the perceived intent of anti-spoofing initiatives makes sense in order to maintain the integrity of the markets, governing bodies must collaborate in order to create more cohesive and uniform laws regulating spoofing. This initiative would streamline enforcement and clarify the scope of prohibited activity. This analysis is already underway, with experts looking at patterns of HFT that point to spoofing becoming part of the requisite conduct for CEA