Even without its catchy name, the relatively new crime of “spoofing” would seem to appeal to prosecutors seeking to tap into the populist desire for prison time for perceived financial chicanery and the view that high-speed trading has rigged the markets against regular participants. Not surprisingly, therefore, the conviction last month in United States v. Coscia,1 the first criminal trial on spoofing charges, has generated a good deal of attention.
Generally, spoofing is a practice, claimed to be manipulative, whereby a trader places and quickly cancels an order that the trader never intended to execute. The notion is that spoofing gives the market a false indication of genuine interest in trading at a specified price, improperly allowing the spoofer to profit on other traders’ responses to this false information, often by placing a legitimate order on the other side of a large non-bona fide order. As a practical matter the conduct is focused in the realm of algorithmic trading, where computer programs are used to place and cancel orders pursuant to a defined set of instructions at extremely high speeds.
