What Does the New Era of Trading Enforcement Mean For You?

November 18, 2015

Historically, global enforcement authorities—including  prosecutors, regulators, futures exchanges, and other financial markets—have been careful about launching investigations into the trading practice known as “spoofing,” but that is rapidly changing. Spoofing is a form of market manipulation using trading strategies that are designed to rapidly place (and then quickly cancel) orders before execution with the intent that the original order be cancelled for non-bona fide purposes.

Since 2010, when spoofing  was specifically outlawed in the United States by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the practice has been tricky to define and allegations of wrongdoing tough to prove. Recent changes in the law and new regulatory guidance have introduced greater clarity to the issue and prompted aggressive enforcement activity against suspected cases of disruptive and manipulative trading—many involving international collaboration among exchanges, regulators, and prosecutors. In a recent notable case, this renewed focus led to the first criminal conviction for spoofing.

As new regulations, amendments to existing rules, and a “task force” approach to pursuing and sanctioning traders usher in a new era of enforcement in the derivatives markets, we help clients stay ahead of the curve. From offices located in Washington, DC, and financial centers around the globe, our investment management lawyers advise funds, managers, financial services firms, and other market participants on developments in this critical area. Working in tandem with our investment management team, our white collar and enforcement and litigation teams play a vital role in representing firms and individuals subject to examinations, investigations, prosecutions, and other litigation that involve allegations of market manipulation and disruptive trading.

Several of our practitioners are former federal prosecutors and enforcement lawyers who have handled cases in this crucial area or are former regulators with experience overseeing the trading markets involved in this new enforcement focus.

We invite you to check out the thought leadership pieces on spoofing prepared by our investment management and white collar enforcement and litigation lawyers and to contact any of the authors with questions.

Landmark Criminal Conviction

In November 2015, a federal jury in Chicago, Illinois delivered the first-ever criminal conviction for spoofing under the Dodd-Frank Act. The case has significant implications for asset managers, proprietary trading firms, and others active in the derivatives markets. Learn more by reading “Prosecutors Record First-Ever Conviction For ‘Spoofing:’ A New Era of Trading Enforcement,” prepared by New York partner David Miller, Washington, DC, partner Joshua Sterling, and Chicago partner Michael Philipp.

Global Enforcement On The Rise

David, Josh, and London partner William Yonge examine the reasons investment firms may benefit from a thorough review of their trading activities in light of recent enforcement actions taken by UK and US regulators, regulatory guidance, and cases related to spoofing in Spoofing the Order Book: UK and US Regulators Take Aim.”

Spoofing And The Dodd-Frank Act

Partners David, Josh, and associate Ari Selman unpack the ways that federal regulators have been engaging their newly acquired powers under the Dodd-Frank Act to rein in spoofing practices in a recent expert analysis piece published by Thomson Reuters. Read The U.S. Government’s Charge Against ‘Spoofing,’” in which the authors define what these new regulations mean for asset managers and other firms active in the derivatives markets.