Trillium’s GC/CCO Michael Friedman was quoted in Bloomberg News, in Thomson Reuters Regulatory Intelligence and in Law360 on his reaction to the 1-hour jury verdict convicting Michael Coscia of spoofing. The Bloomberg story is available here. The Reuters and Law360 stories are paywalled but are excerpted below.
Law360:
Michael Friedman, general counsel at Trillium Trading LLC, said while prosecutors could have previously sued alleged spoofers using general anti-fraud laws — but faced much higher legal hurdles in doing so — they now benefit from a specific tool. Dodd-Frank amended the Commodities Exchange Act to make spoofing more easily prosecutable by declaring it unlawful to bid on or offer a security with intent to cancel that bid or offer before execution….
Friedman said the jury’s decisiveness should end speculation that such transactions are too complex to figure out or that jurors can easily be persuaded that such activity is legitimate.
“There is no rational reason for entering that sequence of buy orders and sell orders other than to manipulate prices in his favor,” Friedman said….
Friedman also expects more civil enforcement actions as a result. He cited comments made by Aitan Goelman, the CFTC’s head of enforcement, at a Securities Industry and Financial Markets Association conference Monday in which Goelman said he was watching the outcome of the Coscia trial in deciding whether to pursue more enforcement actions….
“I think you are likely to see cases that are in a holding pattern, not made public yet, that are going to be pushed forward,” Friedman said.
Reuters:
“There are thousands of unfilled orders every day but only a small handful of them involve spoofing,” said Michael Friedman, general counsel of trading and compliance advisory firm Trillium. Computer scans are used to detect and confirm the pattern. There are now licensed software applications that scan for known malicious code. The spoofs have clear markers that can be identified by a trading software detection tool, such as Trillium’s Surveyor, he said.
The proof of spoof:
The evidence steps to establishing a spoof, he said, are:
A flood of buy orders placed in the market significantly out of the existing price range.
The price of the security or futures contract begins to rise.
Order maker places discrete number of sell positions.
Spoofer removes buy orders.
Price of security (or contract) falls as higher bids taken out….
The fractional gains spoofers realize amid a flood of routine unfilled orders make them harder to detect. But once isolated, the proof is in the algorithm. There is virtually no chance that the five-step sequence could have happened by chance. It almost certainly had been arrived at intentionally, Friedman said.
Update Dec 1, 2015: Reuters story now available here.
