Placing orders with no intention of executing them
Definition
entering of orders which are withdrawn before execution, thus having the effect, or which are likely to have the effect, of giving a misleading impression that there is demand for or supply of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances at that price. Placing orders with no intention of executing them may also be illustrated by the following additional indicators of market manipulation:
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orders to trade inserted with such a price that they increase the bid or decrease the offer, and have the effect, or are likely to have the effect, of increasing or decreasing the price of a related financial instrument;
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the high ratio of cancelled orders (e.g. order to trade ratio)
Surveillance
Effective implementation of surveillance alerts for placing orders with no intention of executing them requires capturing the following trade data:
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trade data
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order and quote data including unexecuted quotes and orders
Order to trade ratio is often used in surveillance alerts to detect placing orders with no intention of executing them. Layering and spoofing and advancing the bid are special cases of placing orders with no intention of executing them.
Reference
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
Entering of orders which are withdrawn before execution, thus having the effect, or which are likely to have the effect, of giving a misleading impression that there is demand for or supply of a financial instrument, a related spot commodity contract, or an auctioned product based on emission allowances at that price — usually known as ‘placing orders with no intention of executing them’. This practice may also be illustrated by the following additional indicators of market manipulation:
(i) orders to trade inserted with such a price that they increase the bid or decrease the offer, and have the effect, or are likely to have the effect, of increasing or decreasing the price of a related financial instrument;
(ii) the indicator set out in Point 4(f)(i) of this Section.
COMMISSION DELEGATED REGULATION (EU) 2016/522, Annex II, Section I, 6 (a)