In the current issue of St. Louis Bar Journal, Thompson Coburn attorney Jan Paul Miller details an emerging area of civil and criminal law: spoofing.
Spoofing involves the placement of non-bona fide, large volume security orders and near immediate cancellation of such order in an attempt to manipulate the market.
It works like this: The broker makes a large order on one side of the market and a small order on the other. The large order is a bluff never intended to be filled and quickly rescinded, but the market responds making the small order more valuable.
New technologies have allowed for these types of trades to be done much more easily and prompted the “anti-spoofing provision” of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Dodd-Frank passed in 2010, but only now are the anti-spoofing provisions making their way fully through the court systems.
In his article, “The Anti-Spoofing Provision of the Dodd-Frank Act: New White Collar Crime or ‘Spoof’ of a Law,” Jan outlines the difficulty of defining just what spoofing is as well as lines of attack for defense counsel in the first anti-spoofing cases. He notes that, in the only judicial guidance on the anti-spoofing provision so far, a Northern District of Illinois federal judge found that the trader’s presumed intent to cancel the order fell outside legitimate trade practices.
A copy of the article, reprinted with permission of the Bar Association of Metropolitan St. Louis and the St. Louis Bar Journal can be found here.
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