Question

Write your thoughts on this discussion?

Spoofing is the act of intentionally deceiving other traders into thinking you have an interest in a stock for financial gain. It is illegal because the Securities and Exchange Commission (SEC) considers spoofing to be a violation of the antifraud provisions of the federal securities laws and a related SEC antifraud rule (SEC, 2015). The specific law spoofing violates is the Securities Act of 1933. The Securities Act attempts to ensure that investors have access to certain basic facts about an investment prior to buying it, and so long as they hold it. The court case I chose to research regarding spoofing is the case of Nav Sarao Futures Limited PLC and Navinder Singh Sarao v. the Commodity Futures Trading Commission and the Department of Justice. These prosecutions preceded the example from the reading by a year and is related to the May 6th, 2010 Flash Crash. Mr. Sarao developed an algorithm that used multiple tactics, including spoofing, that manipulated the stock price of E-mini S&P (Berman). The May 6th, 2010 Flash Crash shaked the market and worried investors about both animal spirits and algorithmic trading. It was a defining moment in the use of technology in investing. In total the change from one day to the next ended up being minimal but trust was broken. After he was found to be guilty, Sarao ended up only spending four months in prison and receiving a sentence of one year of house arrest. I do not believe the results were just because I do not believe we can legislate trust into the market. Bad actors are going to continually find ways to skirt the laws and come up with loopholes to get rich. In addition, companies are going to find new ways to window dress their earnings or legally cook the books. The ideal solution is that we do not trust the markets and come into the situation with a high degree of skepticism instead of regulations.

Answer 1

My thoughts

1) Spoofing - Illegal market manipulation, by creating artificial demand for the financial asset (i.e.various forms)

2) Spoofing also called as bluffing or layering

3) We should carefully chose the market in terms of investment to avoid the spoofer.