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The legal and economic implications from recent UK spoofing cases
Journal of Financial Compliance,
4
(2),
179-193
(2020)
Abstract
UK and US financial market regulators have intensified their efforts in securities and commodities markets to detect and pursue the type of disruptive trading behaviour referred to as ‘layering or spoofing’. Surveying the legal landscape of spoofing prosecutions and actions across the Atlantic, the authors note the UK’s fewer publicly announced enforcement actions relative to the USA. The UK has, however, taken a number of actions in recent years that signal its commitment to enforcing laws against market manipulation in general, and spoofing in particular. The authors discuss legal and economic implications of two prominent examples of UK spoofing cases: the Financial Conduct Authority’s (FCA) investigation of Michael Coscia and FCA vs DaVinci. The authors find that although the trading strategies employed by Coscia and DaVinci were different in some aspects, the two cases share important common characteristics that regulators appeared to have relied on to determine whether the conduct constituted ‘spoofing’.
Keywords: market abuse regulation; enforcement; disruptive trading; order book manipulation; spoofing
The full article is available to subscribers to the journal.
Author's Biography
Greg Leonard heads Cornerstone Research’s European finance practice. Greg has nearly two decades of experience consulting for clients in complex litigation and regulatory proceedings. On behalf of clients, he has led regulatory investigations on both sides of the Atlantic, managing teams and simultaneously supporting experts across multiple related matters. Greg has substantial experience directing analyses of large and complex high-frequency financial datasets, from both private entities and trading exchanges. Greg’s expertise includes high-profile matters at the intersection of finance and competition. He has evaluated a range of alleged anticompetitive activities in financial and commodities markets, including collusive conduct by various market participants, at both the class certification and merits stages. An expert on market manipulation, Greg addresses issues that include allegations of benchmark manipulation, banging the close and other manipulation of settlement indices, misreporting of trade information, front-running client orders, trading to trigger stop-loss orders, spoofing and disruptive trading, wash trading and inappropriate sharing of proprietary information.
Yan Cao specialises in financial economics and financial accounting. Yan has expertise assessing issues related to market efficiency, market microstructure, derivatives, risk management and valuation across a range of complex litigation and regulatory proceedings. Her experience covers matters involving securities, market manipulation and disruptive trading, corporate transactions, bankruptcy and tax controversies. She also applies empirical accounting analysis to a variety of issues, including those related to financial instruments and financial institutions. Yan’s case experience spans a wide range of industries, with a focus on broker-dealers, banking, insurance and other financial institutions. She has led large teams and worked with multiple experts in all stages of the litigation process. Yan’s work includes substantial trial experience.
Marlene Haas specialises in financial and economic analysis for corporate litigation matters. Marlene has addressed complex issues involving benchmark manipulation, spoofing and layering, corners and squeezes, wash trades and ramping allegations. In matters related to alleged anticompetitive conduct, she has evaluated antitrust issues and provided analyses for global foreign exchange, futures and options markets. In support of Cornerstone Research’s FinTech capabilities, Marlene leads matters related to cryptocurrency manipulation, crypto token categorisation and commercial uses for blockchain technology.
Gregory Mocek practice involves legal and strategic guidance on a broad range of issues, including regulatory, government investigations, internal investigations, the Dodd–Frank Act, litigation, legislation, compliance, global financial regulatory and operational risk. Gregory is a former Director of Enforcement at the US Commodity Futures Trading Commission (CFTC). As one of the top commodity and derivatives defence lawyers in the United States, he has advised clients and led investigations in more than a dozen countries. In addition to recognition by Chambers, Washington D.C. Super Lawyers and The Legal 500, he was selected for inclusion in The Best Lawyers in America since 2012, in the area of Derivatives and Futures Law. He also was honoured as Lawyer of the Year in The Best Lawyers in America 2013, for Derivatives and Futures Law. Chambers USA said Gregory is a lawyer who has ‘encyclopedic knowledge of the CFTC’. As a member of the Board of Directors of the Commodity Markets Council, Gregory is involved in rulemaking and policy discussions with industry and regulators.
