The Evolution of Spoofing Enforcement and Avoidance

In an article for The Review of Securities & Commodities Regulation, SEC and futures enforcement defense partner Jim Lundy, investment management counsel Nicholas Wendland and business litigation associate David Yoshimura address regulatory scrutiny over the prohibited type of conduct in derivatives markets commonly known as “spoofing.”

The authors describe spoofing prohibitions in federal law and exchange rules and explain how regulators differentiate between spoofing and legitimate trading activity. They further discuss common types of spoofing, regulators’ investigatory tools and practices, and steps that market participants can take to avoid activity that may constitute or appear to be spoofing behavior.

Lastly, the authors share considerations for designing a supervision and compliance program. In conclusion, they state that before trading, market participants should ensure that they are aware of all current rules and regulatory guidance related to spoofing and other prohibited trade practices in the markets where they transact.