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Abstract: 

“Spoofing” is a term used to describe a form of market manipulation that involves the submission of orders that the trader did not intend to execute at the time of order entry. In this article, the authors begin by describing spoofing prohibitions in federal law and exchange rules. They then describe how regulators differentiate between spoofing and legitimate trading activity. Next, they turn to common types of spoofing identified in the cases and regulators’ tools and practices for dealing with them. They conclude with the surveillance and supervisory processes firms will need to monitor trading by internal reviews to protect against possible inferences of spoofing activity.

Keywords: Civil and Criminal Legal Penalties for Market Manipulation; Trader Intent; Market Exposure Time; Layering; Flipping; Vacuuming

Affiliations:  1: Faegre Drinker Biddle & Reath LLP; 2: Faegre Drinker; 3: Yoshimura.