You Got Spoofed!
Detecting and deterring manipulation remains a critical priority for FINRA.
FINRA has amended its Order Audit Trail System (“OATS”) rules to require alternative trading systems to provide broader order book activity to OATS and FINRA members to capture in their OATS reports the identity of non-FINRA member broker-dealers participating in the over-the-counter market. In 2017, FINRA expanded surveillance for cross-product manipulation to exchange- traded products and related securities, in addition to equities and options.
FINRA is targeting layering and spoofing schemes.
Spoofing involves a trading pattern in which multiple, non-bona fide limit orders are entered generally inside the existing national best bid or offer, with the intention of briefly triggering some type of market movement or response from another market participant, followed by cancellation of the non-bona fide orders, and the entry of any order on the opposite side of the market.
Layering involves a trading pattern in which multiple, non-bona fide, limit orders are entered on one side of the market at various price levels away from the national best bid or offer in order to create the appearance of a change in the levels of supply and demand, thereby artificially moving the price of the security. An order is then executed on the opposite side of the market at the artificially created price, and the non-bona fide orders are immediately canceled.
LAST YEAR, FINRA INTRODUCED THE CROSS MARKET EQUITY SUPERVISION REPORT CARD FOR LAYERING AND SPOOFING ACTIVITY AS A COMPLIANCE TOOL.
The report cards are meant to alert firms when they or their customers are engaging in potentially manipulative conduct. These report cards should be viewed as a supplement, and not a replacement, to their own reviews. Policies and procedures should be reviewed to ensure that they discuss these manipulative trading schemes and the preventative measures the firm is taking.
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Author Bio
Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.
Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.