Athena – Goddess of War on the Close



Do you, as fund managers and traders, trade The Close? Do you target The Close? Do you trade in the last 10 minutes of the day? If so, then this morning note is for you.

While Modern Markets has lately been quite active defending high frequency trading by orchestrating television appearances for Bart Chilton, and puff pieces in the WSJ about Hudson River Trading, the SEC has been quite busy. Yesterday it announced its first ever action against a high frequency trading firm for market manipulation – and manipulating the most important prices in the equity markets – the Closing Price. While the SEC brought this case against Athena Capital Research LLC  (not to be confused with Athena Capital Advisors), it did so without Athena executives admitting nor denying any wrongdoing, and it did so without naming the executives.

Who are those executives? Our efforts to find out who they are have only turned up a few possibilities. For example there is a reference to a BATS board member in this article that references a Mr. Peter Buckley, of Athena Capital Research LLC:

Tradebot is “incredibly successful,” said Peter Buckley, COO of New York-based Athena Capital Research LLC. “Their growth is a direct result of Dave’s vision, of his ability in hiring superior talent — that’s sort of step one,” said Buckley, who met Cummings while serving on the BATS board. “The next step is guiding the talent, keeping them competitive, keeping them on point and working together toward one goal.”

This Peter Buckley is also on one of the CFTC’s sub-committees on HFT !


What did Athena actually do?

Athena systematically and algorithmically manipulated the NASDAQ auction Closing Price in thousands of securities throughout 2009 at the very least. They had HFT programs called “Meat” and “Gravy” specifically designed to manipulate the closing price. Their algorithms read the NADSAQ imbalance information blasts, and reacted in intentionally nefarious ways.

The SEC gives a lot of detail on some of the specifics, including examples of what Athena did in EBAY. Please look at the SEC filing that we linked to; it lays out the blow by blow in an amazingly easy-to-understand way.

Anyway, here are just a few excerpts:

 Athena referred to its accumulation immediately after the first Imbalance Message as “Meat,” and to its last second trading strategies as “Gravy.” In early 2009, Manager 2 described this pattern in an internal Athena email as follows: “We have a desired accumulation pattern which includes grabbing stock at the beginning, a period of ‘average price’ accumulation, and a crescendo at the end.

As a result of these steps, during the Relevant Period, Athena’s Imbalance-Only Orders were filled at least partially over 98% of the time and the firm traded on the entire imbalance of almost every imbalance it wanted. Athena referred to this in internal emails as “dominating the auction” and “owning the game.”

 And here are some quotes taken from Athena managers, owners, partners and officers of the firm:

–          “Let’s make sure we don’t kill the golden goose.”

–          “We can have some aggressive gravy if we know we have a 100% chance of getting the fill.”

–          “Biggest dollar move” … “percentage move” … “Looks like we have some Mach chips….going to Vegas tonight….”

–          “To make sure we always do our gravy with enough size.”

–          “The lack of the blast resulted in extremely poor prices (we essentially gave someone else all the liquidity they wanted with no price impact at all).”


The last email quote is particularly sad – Athena laments that they did now screw the buyside managers targeting the close as well as they wanted to.


Is this SEC Athena case a Big Deal?


The Closing Price is not just any price. Of all the thousands of price points throughout the trading day, it is the most important price. It is used to price mutual funds and ETFs. It is targeted in trading strategies by the buyside (Target-the-Close algos, VWAP algos, etc.) While many in the media are proclaiming this a small case (SEC Brings small, but Important Case against HFT), it actually is not.


Regulators, including the SEC, have always been especially harsh in their view of those who manipulate closing prices. The CFTC took action against HFT firm DRW Investments for this activity. The SEC has also been somewhat harsh when encountering it in the past:


–          In 2002 the SEC fined Piper $100K because one employee helped one customer mark the close in one stock.

–          In 2003 the SEC fined SLKC $450K because employees helped one customer mark the close in one stock.


In the Athena case, we have several employees manipulating, not one stock, but thousands. Not on one day, but every day. The Athena managers, officers, and employees wrote code to accomplish this, and did so brazenly. They wrote about it in emails. They were deliberately manipulative even to the point where they debated internally whether they would get caught, and asked themselves if they were risking “killing the golden goose.”


We Have Five Questions:


1)      This Athena activity is from five years ago. Five. Why did it take five years to fine them and bring this action?

2)      Who cleared Athena’s trades? If it was one of those HFT sponsored-access type firms, like Newedge, did they not monitor their customer’s trading for fraud?

3)      Are there other small “rogue-ish” firms like Athena, also using sponsored pipes, who have engaged in this activity? If I were a regulator, and knew that Athena cleared though and used the pipes of Acme Sponsored Access Firm, I would want to see their client list, and look at each of their clients’ trading activity closely.

4)      We presume NASDAQ, who had no comment on this case, watches for this activity, and perhaps brought it to the attention of the regulators. We hope so. Do they monitor more aggressively for this today?


The most important question we have, however, is why did the SEC settle for a measly $1 million fine with a “neither admit nor deny”, and keep the perps’ names out of the filing? (If they could fine $450,000 for marking the close in just one stock, how can they justify only $1 million for Athena? Why the secrecy on who was involved?



All HFTs are not the same. Heck, we are not even sure what HFT means anymore. Clearly though, Virtu is not Tower (Latour). IMC is not Panther.  KCG is not Jump Trading. Citadel is not DRW. And none of those firms are Athena.

Some firms are clean, transparent, and valuable to the marketplace – they make markets, and do so without strategies designed to detect and disadvantage investors. And in the process the may even make substantial amounts of money – that’s more than ok with us.

Some firms, however, engage in manipulation and deceit, and are a black eye on our industry. They need to be caught and fined hard, and maybe even banned from the industry. If the SEC were thusly harsh, a message would be sent to the investing public that the SEC takes their needs seriously, and it would greatly enhance confidence in the marketplace.

Right now, after reading the SEC- Athena action, we feel no such confidence. We can’t help but wonder how many additional small firms are just like Athena. We feel that a $1 million fine with a “neither admit nor deny” is a joke and an insult.

We can’t wait for the next lobbyist-sponsored puff-piece in the major media. That will make us feel better.