SEC Charges New York-Based High Frequency Trading Firm With Fraudulent Trading
The Securities and Exchange Commission sanctioned a New York City-based high frequency trading firm for placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of NASDAQ-listed stocks. This marks the first high frequency trading manipulation case.
An SEC investigation found that Athena Capital Research used an algorithm that was code-named Gravy to engage in a practice known as “marking the close” in which stocks are bought or sold near the close of trading to affect the closing price. The massive volumes of Athena’s last-second trades allowed Athena to overwhelm the market’s available liquidity and artificially push the market price – and therefore the closing price – in Athena’s favor. Athena was acutely aware of the price impact of its algorithmic trading, calling it “owning the game” in internal e-mails.
Athena agreed to pay a $1 million penalty to settle the SEC’s charges.
“When high frequency traders cross the line and engage in fraud we will pursue them as we do with anyone who manipulates the markets,” said SEC Chair Mary Jo White.
According to the SEC’s order instituting a settled administrative proceeding, although Athena was a relatively small firm, it dominated the market in the last few seconds of a trading day for stocks that it otherwise traded only slightly. The manipulative trading described in the SEC’s order occurred from June to December 2009 and made up more than 70 percent of the total NASDAQ trading volume of the affected stocks in the seconds before the market close.
Source: SEC- SEC Charges New York-Based High Frequency Trading Firm With Fraudulent Trading
