|Spoofing or layering (market manipulaton practice)|
|European Union Electricity Market Glossary|
The term spoofing (or layering) refers to the act of a market participant bidding or offering with the intent to cancel before execution.
Spoofers seek to profit by unlawfully injecting false information into the market to distort prices and to trick others into trading at manipulated prices.
Annex II to Commission Delegated Regulation (EU) 2016/522 of 17 December 2015 describes the following indicators of spoofing as manipulative behaviour: 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.
Analogous definition is used in Annex III to Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive.
The European Agency ACER has published on 22 March 2019 an extensive guidance o spoofing as a manipulation practice (Guidance Note 1/2019 on the application of Article 5 of REMIT on the prohibition of market manipulation, layering and spoofing in continuous wholesale energy markets, 1st Edition).
The ACER’s Guidance Note provides examples of indicators to identify the behaviour taking into account certain characteristics of the orders, in particular the size, price, duration, status, pattern and repetition (other indicators compare the suspected manipulative behaviour with the usual behaviour of the same market participant and the behaviour of other market participants while trading in the same or equivalent products).
The ACER concludes that two cumulative elements must be considered in order to determine whether a behaviour can be considered as layering or spoofing:
- the issuing of non-genuine orders on one side of the order book in order to
According to the ACER, these behaviours are always manipulative because they:
For layering and spoofing behaviours to be considered attempted market manipulation, it is not necessary that they give false or misleading signals or place the price at an artificial level.
The mere intention of a market participant to give these signals or position the price artificially is sufficient for the behaviour to amount to attempted market manipulation.
Interestingly, after analysing constituent elements of layering/spoofing as a market manipulation practice, the ACER also notes that isolated elements of the said behaviours may be part of a legitimate trading strategy, in particular:
- market participant, in principle, may be active simultaneously on the sell and buy side (this may happen under specific circumstances, “for example when a market participant providing market-making services wants to take advantage of the market price volatility or is managing different portfolios in a completely segregated way”);
Commission Delegated Regulation (EU) 2016/522 of 17 December 2015 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council as regards an exemption for certain third countries public bodies and central banks, the indicators of market manipulation, the disclosure thresholds, the competent authority for notifications of delays, the permission for trading during closed periods and types of notifiable managers' transactions
|Last Updated on Sunday, 05 May 2019 12:21|