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SEC Fines Firm in First High Frequency Trading Manipulation Case

Last week, the SEC fined Athena Capital Research, a high frequency trading firm $1 million for aggressive trades that the agency stated were designed to manipulate the closing price of thousands of securities over a six month period. The SEC found that Athena was engaged 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.  At the time of the trading in question, the fund employing these strategies has $40 million in assets under management. According to the order, Athena “dominated the market,” accounting for over 70% of the total NASDAQ trading volume for certain securities in the seconds before the close. Athena’s strategy focused on the NASDAQ closing auction, accumulating shares on one side of the market in the ten minutes leading up to the close and executing an order in the closing auction on the opposite side of the market.

The SEC found that the firm violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. SEC Chair Mary Jo White commented that “[w]hen high frequency traders cross the line and engage in fraud we will pursue them as we do with anyone who manipulates the markets.”

The SEC’s release on the issue can be found here