Sunday, January 27, 2019

Learning About Spoofing

Yesterday, I had the honor of participating in a symposium organized by the University of Pennsylvania Journal of Business Law, in collaboration with the Center for the Study of Business Ethics, Regulation, & Crime at the University of Maryland (C-BERC), on Harmonizing Business Law.  It was a well-organized, engaging, and informative event.  It also introduced me to some great research that I plan to highlight today and in future posts.  

I’ll keep this first look brief as I traveled all day and I want to circle back to this topic later once I learn more.  Gideon Mark, Associate Professor and Associate Director of C-BERC at the Robert H. Smith School of Business at the University of Maryland, discussed Spoofing and Layering, noting the minimal attention these topics have received in business law scholarship.  If you’re like me, you’re probably vaguely aware of these concepts, but couldn’t provide an elegant definition on your own.  Let me help.  Section 747 of Dodd-Frank, which amends the Commodity Exchange Act to prohibit disruptive trading practices, terms “bidding or offering with the intent to cancel the bid or offer before execution” to be spoofing.  Layering is a specific type of spoofing (apparently, an “advanced form”).  Here’s some background on these topics. And here’s why I want to circle back in the next few weeks.  Apparently, some commentators argue that spoofing isn’t so problematic because it only harms “‘front-running’ high-frequency traders who try to profit by trading ahead of other legitimate orders” (Matt Levine is quoting John Arnold).  Front-running is “the illegal practice of purchasing a security based on advance non-public information.”  Although I think I disagree with this perspective, I’m intrigued and want to learn more.  So, any readers who think spoofing isn’t so problematic, I invite you to educate me.  Share your best argument(s) or direct me to helpful resources arguing for this perspective.

Finally, I don’t want to end today’s post without congratulating the conference organizers (Leigh Anenson, Gideon Mark, Brian Reid, and Nicolle Stracar) for the success of this event or thanking them for all the hard work that went into its production.  And, yes, I discussed clearinghouses.  You really had to ask?

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