Bloomberg Business - How to Catch a Spoofer

September 4, 2015
by VXfintech

Category: Market Activity, Bloomberg

A recent high-profile case in Chicago brought by HTG Partners alleged that the U.S. Treasury futures market was manipulated on December 6, 2013. On this date, over 5,000 orders were modified or executed for the US 10-Year Treasury Bond. HTG requested that the Chicago Board of Trade (CBOT) reveal the owner who entered these trades and who may have affected the market through spoofing. Spoofing, as described by Bloomberg Business in "How to Catch a Spoofer", occurs when the market is deceived into thinking there is more demand to buy or sell than actually exists.

In its lawsuit, HTG stated the alleged activity occurred when one or more entities traded on the CBOT through the CME’s Globex trading platform causing damages of over $100,000. In addition to the firm’s damages, HTG also brought the case to stop ongoing disruption to the market they said took place from January 2013 through August 2014.

We became involved in the case as a neutral party not only because of our access to the Chicago Board of Trade’s information feed, but also because of our unique ability to quickly visualize what occurred during the specific timeframes cited. The information we collect and manage allowed us to sequence and visualize data to the millisecond on the contract under dispute, the US 10-Year Treasury Bond.

We worked with Bloomberg on the HTG story to illustrate the volume of trades made on the 10-Year Treasury Bond in one minute. Through our platform, we were able to provide the data to show the 5,000 trades down to the millisecond. Bloomberg used this information to demonstrate how difficult it is to monitor and detect the activity of spoofing:

Bloomberg Visualization

As indicated in the Bloomberg article, there are three key actions to look for to spot spoofing in the market:

1. The Build-up: the spoofer enters orders to buy or sell that he does not intend to execute. This creates false demand. In this example, the spoofer enters a block of sell orders.

2. Cancel: the spoofer cancels the orders.

3. Sweep: the spoofer enters a large order on the opposite end of the trade, in this case buy orders, to reap profits from the false market he created.

As this case proceeds, HTG must prove these spoofing examples actually occurred and were perpetrated by specific individuals or companies that in turn damaged HTG. Meanwhile, the CME needs to reveal the identities of the purported spoofers in this case.

For more information, please contact Vertex Analytics at (312) 924-1454 or info@vertex-analytics.com.