| Spoofing has appeared frequently in developed capital markets,but it is still a new word in China.Eastern spoofing has caused severe turbulence to the market,but there are still many disputes in the academic circles about what kind of spoofing belongs to,what is the difference from other illegal market manipulation activities,what is the relationship with false declaration manipulation in China and what terms to regulate it.This paper summarizes the meaning and characteristics of spoofing,analyses the causes of spoofing,summarizes the specific manipulation methods of spoofing according to typical cases at home and abroad,intends to unveil the veil of spoofing,and compares and distinguishes the existing false declaration manipulation with other illegal acts using high-frequency trading means.This paper combs the existing legal provisions on the regulation of spoofing both at home and abroad,in order to better adhere to the legal law for the regulation of spoofing at present;this paper also puts forward legislative and regulatory suggestions on the gaps in the law and the lack of supervision,in order to better regulate and even completely eliminate the occurrence of such acts in the future.The purpose of spoofing is to raise the purchase price or reduce the sale price by issuing false orders that are not intended to be traded.When the market changes in its expected direction,the previous orders will be cancelled quickly and the orders will be placed in the opposite direction.The characteristics of pretense lie in the continuousor large orders placed by one party,the rapid withdrawal of orders,and the low turnover rate of previous manipulation orders.There are five main reasons for the occurrence of pretense fraud.First,we can manipulate the market by influencing the price formation mechanism: the trading rules of the United States are the best quotation system,and the fraudsters can influence the best quotation in the market by withdrawing orders.The trading rules of the Chinese market are the principle of price priority and time priority.The fraudsters can influence the market price quotation by using the following mentality of other investors,whether in the United States or in China.Through this,the actor can influence the transaction price through his own behavior to achieve the purpose of reverse trading with a higher price.Secondly,the development of computer technology has provided technical support for spoofing.False spoofing is mostly a means of using high-frequency trading technology.High-frequency trading relies on programmed trading and algorithmic trading.The former is to order automatically by computer,and the latter is to optimize trading decisions by computer.In addition,the development of computer technology also provides the possibility of automatic withdrawal of orders and avoidance of self-dealing,which makes the manipulation of the market more proficient.Third,the blank of the legal system.Before the Dodd-Frank Act was promulgated,there were no specific legal provisions for pretense fraud in the United States,so the former manipulators had a chance mentality to escape the legal sanctions.In fact,according to the principle of non-retroactivity of law,the penalties for pretense fraud before the introduction of pretense fraud provisions were more tolerant.Fourthly,the regulatory authorities are not adequately supervised.The high-frequency technology used by deceivers is so fast that regulators may not keep up with them.Five years after the flash order crash in the United States,the U.S.government collected enough evidence to bring the culprits to justice.Fifthly,the cost of breaking the law is small but the profit is huge.The blankness of the early legal provisions makes a bad atmosphere in the market.Because of the possibility of evading legal supervision,the actor decides to choose illegal acts after measuring the cost and benefit.There are different voices in the theoretical circle of the relationship betweenpretense fraud and high-frequency trading.Some scholars believe that all spoofing is the use of high-frequency trading technology.Some scholars believe that the identification of spoofing has nothing to do with the use of high-frequency trading technology.Others believe that spoofing and high-frequency trading behavior are different in form,but in essence,spoofing is the natural enemy of high-frequency traders.The first harm of spoofing is high-frequency traders.The author believes that the above three statements are too absolute.Most of the deceivers use high-frequency trading methods,but there are also cases of manual order.Because of the high-frequency trading technology,pretense fraud has the advantage of speed,so it is higher than ordinary traders who do not use high-frequency trading technology.However,it stands in the same position as legitimate high-frequency traders.Because of its too fast speed,false orders are quickly captured and digested by other high-frequency traders before they can place their orders,which has a greater impact on these investors.There are many illegal acts of using high-frequency trading,some of which are very similar and difficult to distinguish from spoofing.For example,quote stuffing behavior is to make use of high-frequency transactions in a very short period of time to withdraw a large number of orders,in order to cause the blockage of the trading system,when other actors cannot respond to their own operations.The difference between spoofing and quote stuffing is that the purpose of spoofing is to withdraw the bill at a more favorable price in the opposite direction.The purpose of quote stuffing is to cause congestion in the trading system.The Pinging behavior is to place orders in different price ranges to detect large orders of institutional investors,and cancel orders that have not yet been completed if no large orders are found.The difference between spoofing and Pinging is that the Pinging is not for reverse trading,but to find large orders,grab the order before the big order,and then provide new prices to the institutions to invest,using the price difference to make profits.Momentum Ignition is similar to spoofing,which creates a price trend through withdrawal of bills.However,the difference between them is that the strategy of momentum Ignition needs to build warehouses in advance,and then liquidate the warehouses after the market changes in its expected direction.Flash order trading haslittle similarity with spoofing,but it is similar to Pinging.Both of them take advantage of information advantage to sweep the order before a certain kind of actor,and then resubmit it to such actor at a new price to make profit by using price difference.Flash order trading is different from the test order.Flash order trading is the product of collusion between high-frequency traders and exchanges.The test order needs to be detected by high-frequency traders themselves.The boundary between fraud and false declaration manipulation is even more blurred.Some scholars believe that pretense fraud is inherent false declaration manipulation in our country,and even directly translates the English word spoofing into false declaration manipulation;others believe that false declaration manipulation is through manual order,pretense fraud is through programmed transaction computer order,and pretense fraud does not necessarily have the characteristics of "frequent" false declaration manipulation.The author believes that the essence of spoofing and false declaration is the same.They all influence the market price trend through false declaration withdrawal,thus making a reverse profit by placing an order.There are also manual orders in cases of pretense fraud.Each declaration of pretense fraud has little effect on the market price,and it also needs multiple declarations to basically meet the definition of frequent.We cannot distinguish the two because of the different tools used.Because of the use of high-frequency trading,it sometimes seems incompatible to regulate pretense fraud with the existing laws of false declaration manipulation.In this case,we should amend regulations,rules,or promulgate documents to explain how pretense fraud applies to our laws.The legislation and supervision system of spoofing in the United States is very mature.The US futures market is regulated by the Commodity Futures Commission(CFTC)under the Commodity Exchange Act,and the securities market is regulated by the Securities and Exchange Commission(SEC)under the Securities Act and the Securities and Exchange Act.Section 747 of the Dodd-Frank Act,enacted in 2010,first defines pretense fraud,which is then absorbed into Section 4c(a)(5)of the Commodity Exchange Act as the fifth act of market disruption.Since then,CFTC can identify pretense fraud directly on the basis of this provision.In 2013,CFTCpromulgated the Guidelines and Policy Notes for Explaining "Prohibiting Disturbance of Market Behavior" to further regulate pretense fraud.In the Guidelines,four cases of false withdrawal without transaction purpose are listed,including overloading the quotation of trading system,affecting other TRADERS’transactions,creating market depth illusion and creating price fluctuations.In September 2014,the Chicago Mercantile Exchange Group implemented the new regulation 575,which defines three kinds of disruption of market transactions by importing false orders and defines spoofing.However,in the field of securities market,the Securities Regulatory Commission of the United States did not amend the Securities Act and the Securities Exchange Act,but used Securities Exchange Act 9(a)(2)and 10(b)to determine that fraud is illegal.With regard to the subjective identification of spoofing,the futures market in the United States has undergone a transition from deliberate price manipulation to deliberate withdrawal of orders before the transaction.This change reduces the degree of subjective identification of the perpetrator,and can better incorporate spoofing into the framework of illegal acts.However,the securities market still requires the actor to manipulate the securities price intentionally.Because of the linkage between the securities and futures markets,American scholars believe that it is possible for the fraudster to arbitrage according to the degree of their subjective determination.China&apos regulations on manipulation of false declarations are relatively mature.In the futures market,it is mainly stipulated by the "Futures Trading Regulations" which prohibit price manipulation.In the securities market,it is mainly regulated by the "Securities Law" article 77,which takes the "Guidelines for the Identification of Securities Market Manipulation Behavior(Trial Implementation)as the detailed rules,supplemented by the"Measures for the Identification of Securities Market Manipulation Behavior".If the circumstances are serious,the crime of Manipulating Securities and futures markets can be stipulated in Article 182 of the Criminal Law.In addition to the legal documents already in force,the two laws that are being revised in our country have more perfect provisions for such illegal acts.The Securities Law(Revised Draft)explicitly adds Article 4,"Frequent declaration andwithdrawal of declaration without transaction as the purpose" to the manipulation of the securities market.The "Procedural Trading Management Measures for Securities and Futures Markets(Draft for Opinions)" changed the recognition of frequent fraud from three previous withdrawal orders to a lower proportion of transaction entrustment,which is more scientific and reasonable.There are different opinions in the theoretical circle on whether the spoofing can be regulated by the hoop clause in the crime of Manipulating Securities and futures markets in Article 182 of the Criminal Law.The principle of homogeneous interpretation requires that whether the clause can be applied to an act depends on whether the act conforms to the essential characteristics of correcting a crime.The essential characteristic of the crime of manipulating the securities and futures markets is that the actors use their own advantages to manipulate the market in terms of price or capital,which affects the judgment and decision-making of other investors on the market.The spoofing seriously infringes the interests of other investors,disrupts the market order,abuses its own technological advantages,manipulates the market,and has an impact on the judgment and behavior of other investors.Therefore,it should be regulated by the bottom clause in the crime of Manipulating Securities and futures markets.China&apos law on false withdrawal is more detailed,but there are still shortcomings.The legislative proposals put forward by the author include the distinction between pretence fraud and false declaration manipulation.The implementation regulations or rules can adopt the enumerative way to incorporate the pretence fraud using high-frequency transactions into the false declaration manipulation.At the same time,the futures market should also step up the formulation of implementation rules in order to better regulate illegal acts in this field. |
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