Spoofing trading manipulation
Coscia was charged with six counts of spoofing with each count carrying a maximum sentence of ten years in prison and a maximum fine of one million dollars. By placing the large buy orders, Mr. Coscia and Panther sought to give the market the impression that there was significant buying interest, which suggested that prices would soon rise, raising the likelihood that other market participants would buy from the small order Coscia and Panther were then offering to sell.
The complaint in the high frequency matter named "every major stock exchange in the U. High-frequency trading firms and hedge funds are also named in the lawsuit.
We will use the Dodd Frank anti-disruptive practices provision against schemes like this one to protect market participants and promote market integrity, particularly in the growing world of electronic trading platforms. It is "against the law to spoof, or post requests to buy or sell futures, stocks and other products in financial markets without intending to actually follow through on those orders.
The Dodd-Frank brought significant changes to financial regulation in the United States. On April 21, , five years after the incident, the U. Department of Justice laid "22 criminal counts, including fraud and market manipulation"  against Navinder Singh Sarao, who became known as the Hounslow day-trader. Sarao claimed that he made his choices to buy and sell based on opportunity and intuition and did not consider himself to be one of the HFTs.
The Flash Crash  was a United States trillion-dollar  stock market crash , : They appeared to be in a race to zero. It taught us something important, if uncomfortable, about our state of knowledge of modern financial markets. Not just that it was imperfect, but that these imperfections may magnify, sending systemic shockwaves. Technology allows us to thin-slice time. But thinner technological slices may make for fatter market tails.
Flash Crashes, like car crashes, may be more severe the greater the velocity. Physical catastrophes alert us to the costs of ignoring these events, of normalizing deviance.
There is nothing normal about recent deviations in financial markets. The race to zero may have contributed to those abnormalities, adding liquidity during a monsoon and absorbing it during a drought. This fattens tail risk. Understanding and correcting those tail events is a systemic issue. In July, Chinese officials said they thought they detected 24 instances of spoofing as shares on the Shanghai and Shenzhen stock exchanges plummeted. The trading on the Chicago Board of Trade is anonymous and organized in an order book like the one seen here.
It shows the best prices to buy or sell near the last traded price. The total number of bid and ask offers at each price indicates where the demand is. The spoofing alleged in the lawsuit took place in the market for U. In that minute, orders were modified or executed more than 5, times.
While there have always been ways to cheat the system, the rise of computerized trading has made manipulation more of a threat as markets around the world are linked in ways they never were before. The speed and sophistication of cheaters have also increased with electronic trading, which is posing a challenge to regulators.
Futures trading today mostly involves one computer trading against another computer. It takes a practiced eye to catch a spoofer in that maelstrom. The first stage is called the build-up.
Honest traders are tricked into following suit and enter sell orders on the expectation that prices will fall and they can buy back the contracts for a profit. The spoofer then cancels all the fake orders in the second phase. In the third phase, called the sweep, the spoofer enters a large buy order. That leaves the honest part of the market having sold contracts as prices are rising, not falling.
As the honest traders—their computers, actually—scramble to reverse their trades, the spoofer is waiting to sell them contracts at a profit.