Trust Street

Michael Coscia, the manager and sole owner of a small New Jersey-based trading firm called Panther Energy Trading LLC (founded in 2007), was the first person to be criminally prosecuted under the Dodd-Frank Act’s spoofing provision, being sentenced to 3 years in prison, in relation to trading strategies he pursued between August 2011 and October 2011. Before the indictment On October 2011, Michael Coscia was notified by the US Commodity Futures Trading Commission (CFTC) and by the UK Financial Conduct Authority (FCA) for allegedly violating exchange rules and the Dodd-Frank Act’s spoofing provision. Michael Coscia states that, after receiving such notice, he stopped using the suspicious trading strategy. On July 2013, he settled with the above mentioned authorities, having disgorged all profits (amounting to 1,7 million USD), paid fines (amounting to 2,8 million USD) and been suspended from trading during the period of 1 year. The indictment In spite of the said set...

There is a heated debate in the market whether spoofing should be legal.  Find below the main arguments of both sides of the debate. Make it legal arguments: Spoofing is simply a form bluffing, and there is no reason for bluffing to be illegal;  Spoofing mislead mostly high frequency traders, as they are the first to react to changes in the order book, and HTF are professional traders that should be prepared to take losses if they are not able to adapt their algorithms to other trader's forms of trading;  When investors want to trade large blocks of shares, if they do not use means to conceal that there is an additional strong interest entering one side of the order book, such large blocks of trades will have a strong impact in the price, leading the trader to trade at less favorable conditions – one way to achieve such is by placing non-genuine orders in the opposite side of the order book in order to pretend that there is an additional strong interest in bo...

Spoofing can assume many forms, and can be defined broadly as the placement of orders (bids or offers) without the intent of actually filling them. In a narrower definition, such orders are placed with the sole objective of tricking other market participants into believing that there is a stronger interest in buying (or selling) than it actually is. If successful, the spoofer will drive other market participants to increase (or lower) the prices of their orders,  and consequently will be able to sell (or buy) at more favorable conditions than she would have had if she had not spoofed.  One spoof order usually has a tiny impact in the market price, but if such practice is done repeatedly it can allow the spoofer to achieve large profits. Spoofing is not by any means a recent practice, but its frequency and market impact have been elevated to another level by high frequency and algorithmic trading. Note that many in the market, including some regulators, use the terms ...