High Frequency Trading Firm Sanctioned for “Marking the Close”

By: Mike Nolan

What is Happening:

High frequency trading is being scrutinized more closely than ever. For the first time, the SEC recently sanctioned a New York-based, high frequency trading firm for market manipulation. According to the SEC, for several months in 2009 the firm was using aggressive, rapid-fire trades during the final two minutes of the market day to adjust the closing price of stocks (called “marking the close”), often in Athena’s favor. The firm has since settled, agreeing to pay $1 million in penalties.

Critics are concerned that these strategies could potentially hurt smaller investors and have an impact on the perceived values of investment products, since closing stock prices are used to calculate the daily net asset value of mutual funds.

Statements by SEC officials indicate that the agency is planning to increase its investigations and leverage more sanctions against firms participating in this type of market manipulation.

What Your Firm Can Do:

Even if you don’t consider yourself to be a high frequency trading firm, Oyster Consulting recommends the following practices:

Review your trading surveillance program to make sure it has evolved to address current market risks.
Test and review firm’s practices or client algorithms to identify any potential misconduct.
Update your Written Procedures to include monitoring and policies to refrain in such practice.
Educate your staff and clients about recent market manipulation enforcement actions.

How Oyster Can Help:

Oyster Consulting is ready to help your firm assess its policies and procedures, identify required actions, recommend best practices and provide training to your personnel regarding high speed trading and market manipulation. Contact us if you have any questions or need support to review your firm’s risk assessment needs.

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