Is This Spoofing?

January 7, 2016
by VXfintech

Category: Market Activity

Is this Spoofing?

Spoofing has recently gained notoriety in the press from high-profile court cases and alleged disruption claims of the market system. What is 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.

Here are a few high-level scenarios that might be considered spoofing:

• Trader A enters a quote to sell 3,000 of one contract and then cancels them seconds later.
• Trader B enters a quote to buy 3,000 of one contract and then cancels them seconds later.
• Trader C enters a quote to sell 100 of one contract, then cancels them seconds later and then buys the contract at the exact same price he was trying to sell.
• Trader D, Trader E and Trader F enter 10 buy and sell trades over several different contracts, across three different exchanges, that are all cancelled seconds later.

Who, then, was spoofing?

It depends. The "anti-spoofing" provision of the Commodity Exchange Act prohibits "any trading, practice, or conduct [that] . . . is of the character of, or is commonly known to the trade as, 'spoofing' (bidding or offering with the intent to cancel the bid or offer before execution)." 7 U.S.C. § 6c(a)(5)(C). Knowing violation of the anti-spoofing provision is a felony. Id. § 13(a)(2). It is difficult to define intent without more details of the exact trading event and context relative to trade execution across different contracts or exchanges. Vertex is able to shine more light on what just happened during these complicated market activities. The Vertex platform helps customers discover different types of trading patterns with incredible speed and accuracy. For more information on how Vertex can help you, please contact us at (312) 924-1454 or info@vertex-analytics.com.