Is this spoofing?

Dodd Frank Section 747 brought us a rule against “spoofing,” which is the entry of an order in the futures markets with the intention to cancel the order before it is acted upon. CME Group in its Rule 575 went a little further and also prohibited orders entered with the intent to mislead other market participants. With those two rules in mind, please take the following quiz and see if you can tell the difference between spoofing and legitimate trading. Remember, the trader always says he intends to trade and the regulator always thinks that the trader intends to spoof.

  1. The market is 2 bid at 5 offer, 50 up. You enter orders to pay 3 for 10 and sell 100 at 4. When your 3 for 10 gets filled you cancel your 100 at 4. 
    Is this “spoofing”?
  2. The market is 2 bid at 4 offer, 100 by 20. You enter orders to pay 2 for 20 and sell 100 at 3. As other market participants join you on the 3 offer, you cancel your offer and lift the remaining 3 offers. 
    Is this “spoofing”? 
  3. The market is 2 bid at 8 offer, 10 up.  You enter orders to pay 3 for 10, 4 for 10, 5 for 10, and 6 for 10. You also enter an order to sell 10 at 7. When your 10 at 7 gets filled you cancel all of your bids.
    Is this “spoofing”?
  4. The market is 3 bid at 5 offer, 50 up. You enter an order to pay 4 for 100 as an “iceberg” showing only 5 at a time. 
    Is this “spoofing”?
  5. The grain market is in a pre-open state at 7:45 AM and a crop report is due out at 8:00 AM. You enter orders, limit bid for a million bushels and limit offer for a million bushels, because you think the report will be way out of line but you don’t know in which direction. If you are right you intend to cancel one order or the other before the opening and if you are wrong you will cancel both orders before the opening. 
    Is this “spoofing”?
  6. The market is 5 bid at 7 offer, 10 up. You enter a “fill or kill” order, 6 for 10, over and over but get no fills.
    Is this “spoofing”? 
  7. Every order has one of 2 outcomes. It is either filled or canceled. Trading on WebICE you use their “time to live” feature and set every order to cancel in 1 second if not filled. 
    Is this “spoofing”? 
  8. You are trading an illiquid market that is 2 full points wide, 800 bid at 802 offer, 10 up. You enter an order 800.10 bid for 10 and immediately the algos jump ahead to 800.20 bid. You enter an order 800.50 bid for 10 and the algos immediately jump ahead to 800.60 bid. You do the same on the offer side and get the same result. When the algos don’t jump ahead of you, then you have found the real market, 801.10 bid at 801.50 offer. You decide at that level you want to be a seller rather than a buyer so you hit the 801.10 bid and cancel all of your bids underneath. 
    Is this “spoofing”? 
  9. Like #8 except that you know you want to sell the best bid you can so you bid it up until the algos stop bidding. You sell their best bid and cancel all your bids underneath. 
    Is this “spoofing”? 
  10. You have noticed a correlation between Dec. 2018 Fed Funds and Dec 2018 Eurodollars and a move in one always results in a move in the other. You bid up the Fed Funds in order to sell the Eurodollar. When you are filled in the Eurodollars you cancel your Fed Funds bids. 
    Is this “spoofing”? 

The answers are in Breakout

About the Author

Independent compliance consultant and expert witness with 35 years experience in the Futures industry. Most recently Marc served as COO and chief compliance officer for Dorman Trading in Chicago, where he still serves as General Counsel.