Spoofing and the Limit-Order Book

Navigant Economics’ John Montgomery publishes a Law360 article

Navigant Economics' John Montgomery publishes a Law360 article on the issue of spoofing in the commodities and future markets. 

Spoofing entered the law books with the passage of the Dodd-Frank Act in 2010.  As one of three disruptive trading practices in the futures market prohibited by the Act, spoofing was defined as “bidding or offering with the intent to cancel the bid or offer before execution.”  Sometimes called layering, spoofing can occur in either securities or futures markets, although the specific Dodd-Frank provision covers only futures markets.  It has been the subject of vigorous enforcement in recent years, culminating in the criminal conviction of Michael Coscia in November 2015 and the recent indictment of UK-based trader Navinder Singh Sarao.

John Montgomery explains how spoofing-type transactions might move the market and be profitable. The article raises an important policy question regarding spoofing, by outlining how spoofing activity may have a beneficial effect on market functioning. Finally, because a trader’s intent is a central issue in spoofing actions, the article explores how experts might analyze trading data to provide evidence relevant to a spoofing defendant’s intent.

Read Full Article
Back to top