England's FSA Focuses On Market Manipulation By Spoofing; In Other News SEC Continues To Do Nothing
A favorite practice by numerous market makers, better known as "spoofing," in which order blocks, which will never be executed, prop up either side of an order book with the goal of manipulating the stock price, is starting to get much needed scrutiny across the Atlantic.
According to Reuters, the FSA, the UK's seemingly infinitely more efficient regulator than its domestic Wall Street affiliate known as the SEC, "said on Tuesday it will fine or suspend
market operators involved in manipulation practices known as "spoofing"
Spoofing and layering involve putting apparent trades on share order
books to create a misleading impression of the stock price or
liquidity. They both constitute potential market abuse, an LSE
spokesman told Reuters.
Spoofing involves using systems' "direct market access," or DMA,
which can offer investors like hedge funds, fund managers and private
investors -- whether regulated by the FSA or not -- access to a stock
order book. In a spoofing case, a trader gives the impression to put in
a buy or sell order it does not want to complete to drive down the
Most investment banks offer DMA solutions to some of their clients, the LSE spokesman said.
Layering consists of submitting multiple orders, typically on one
single stock, to create the impression the share is highly liquid.
Could either of these openly illegal practices have anything to do with the insane moves in trash financials such as AIG, FNM and FRE, which continue dominating a bulk of share volume on the NYSE? Why of course, but maybe there is confusion in the domestic marketplace as to whether or not this is considered an abusive practice. The following clarification from the FSA clears that up:
"Some market participants may not be sure that it (spoofing or layering) is wrong. This is to clarify that it is," said [an FSA spokesman].
In the meantime, the SEC is either blissfully unaware that comparable trading protocols have driven up the fab five financial stocks' volumes to record highs, or sternly refuses to issue any proclamation against the massive speculative mania that has gripped American equity markets. After all, if Citi can close the day with a $25 billion market cap higher in the span of a few hours on nothing but a little spoofing and layering, why end it? In the meantime, retail investors should know better and understand that as long as they take their profits in these stocks which, by most estimates, are worth a few nickels at best, before everyone else, all shall be well. And Mary Schapiro can sleep well at night, fully aware of just how coginzant market participants are that the entire market has become a complete sham, and how the anger against her "regulatory" agency is more pronounced by the day.