Chicago, the historical hub of futures markets, is becoming the center of civil and criminal litigation in high-speed trading.
The mix of brand-new laws banning disruptive trading practices and a U.S. Attorney's Office in Chicago excited to punish offenders is swelling the variety of cases in court here. Lots of focus on "spoofing," an illegal practice in which traders profit from positioning orders they plan to cancel, often only milliseconds later on.
In addition to winning the first criminal conviction of a spoofer this month, in U.S. District Court in Chicago, federal district attorneys here are transferring to try a British trader charged of supporting the 2010 Flash Crash through market adjustment. Meantime, the Commodity Futures Trading Commission is pushing civil spoofing charges versus a Chicago trading company, and competing firms are fighting one another over charges of rigging the market.
The decision against Panther Energy Trading's Michael Coscia– the jury required simply an hour to discover him guilty on Nov. 3 of all 12 counts– provides high-speed traders their clearest signal yet on what they can and can not do under the Dodd-Frank Wall Street Reform and Customer Defense Act. Cross this line and, at worst, they could deals with decades in prison or, at best, be compelled to drop rewarding trading practices and strategies.
"It really is an entirely brand-new frontier for traders in the industry," states Stacie Hartman, a Chicago litigator at Schiff Hardin who represents trading firms and other market participants. "This is now a particular focus on the digestive tracts of what traders do every microsecond.".
Till recently, Chicago has actually played a narrow role in the enforcement of trading laws. Instead, these matters commonly were dealt with in New york city courts, given the proximity to Wall Street's stock trading. However Chicago's function has actually been lifted by the flood of electronic trading orders flowing from all over the world through futures exchange controller CME Group's computer system servers.
Chicago trading firms, consisting of Citadel, Jump Trading, DRW Holdings and Allston Trading, have actually made the city a hub for high-speed trading. While a lot of them outgrew futures floor operations, they now dart in and out of monetary markets worldwide using secret strategies.
In addition, U.S. Lawyer Zach Fardon has made policing the industry a top priority. He built a team of a lots prosecutors in 2014 to focus entirely on securities and commodities criminal offenses, using new tools under Dodd-Frank to thwart disruptive trading practices in the electronic sphere.
"Fairness and stability in the financial markets have to be protected in the age of high-frequency trading," says Renato Mariotti, the lead federal district attorney in the Coscia trial.
The Coscia case hinged on intent. The high-speed trader acknowledged that he canceled 10s of thousands of orders over a nine-week period in 2011, however suggested that he initially had actually prepared to follow through on the trades. To the jury, though, Mariotti showed that the rapid-fire orders and cancellations were market controls meant to trick and defraud other traders.
District attorneys are "now pushed and they have a plan," K&L Gates attorney Cliff Histed informed an audience at the Futures Market Association Exposition in Chicago this month.
Histed dealt with the Coscia case in the U.S. Lawyer's Workplace prior to leaving for private practice this year. "We have actually got a U.S. attorney who's not scared to implement this law," he says later in an interview. The brand-new aggressiveness includes surprise FBI visits to trading firms and the aid of new CFTC and Securities and Exchange Commission whistle blower programs developed by Dodd-Frank, he states.
The CFTC lodged civil charges last month against Chicago-based 3Red Trading and its owner, Igor Oystacher. In fighting the suit, the offenders state the commission is classifying "genuine trading and danger management as a market infraction.".
"The quantity of litigation reflects much less consensus in between the managed and the regulatory authorities about the specifications of these rules– the scope and penalty of these policies– since it's a huge step to litigate these cases," states Christian Kemnitz, a lawyer at Katten Muchin Rosenman who is dealing with trading company clients.
Trading companies are incriminating each other. Chicago-based Castle also grumbled about Panther's trading, and another Castle staff member affirmed for the prosecution in Coscia's trial.
High-speed companies are taking legal action against each other in Chicago federal court, too. HTG Capital Partners took legal action against "John Doe" over spoofing and is aiming to compel CME to reveal the name of the culprit. Kemnitz is representing "John Doe" in the case but will not go over the matter.
"Firms want to do the best thing," he states. Expect Chicago courts and district attorneys to help set them directly.
Up until just recently, Chicago has actually played a narrow function in the enforcement of trading laws. Chicago's role has been lifted by the flood of electronic trading orders flowing from all over the world through futures exchange operator CME Group's computer servers.
The new aggressiveness consists of surprise FBI sees to trading companies and the help of brand-new CFTC and Securities and Exchange Commission whistle blower protocols developed by Dodd-Frank, he states.
In combating the suit, the offenders state the commission is categorizing "legitimate trading and danger management as a market infraction.".
Trading firms are incriminating each other.