Layering and spoofing

Definition

submitting multiple or large orders to trade often away from the touch on one side of the order book in order to execute a trade on the other side of the order book. Once the trade has taken place, the orders with no intention to be executed shall be removed

Surveillance

Effective implementation of surveillance alerts for layering and spoofing requires capturing the following trade data:

  • trade data

  • order and quote data including unexecuted quotes and orders

Sophisticated alerts for layering and spoofing also consider the depth and shape of an order book with hight time resolution. Layering and spoofing is a special case of placing orders with not intention of executing them.

Reference

Precious metals layering and spoofing on COMEX

Japanese Government Bond Futures layering and spoofing

Flash Boys

A fascinating story of high frequency traders and some of their methods used to gain advantage over slow traders. The Times, Observer, Financial Times, New Statesman and Times Literary Supplement Books of the Year 2014

Regulatory source

Submitting multiple or large orders to trade often away from the touch on one side of the order book in order to execute a trade on the other side of the order book. Once the trade has taken place, the orders with no intention to be executed shall be removed — usually known as layering and spoofing. This practice may also be illustrated by the indicator set out in Point 4(f)(i);

COMMISSION DELEGATED REGULATION (EU) 2016/522, Annex II, Section I, 5 (e)