The term spoofing (or layering) refers to the act of a market participant bidding or offering with the intent to cancel before execution.

 

New

20 January 2020

 

BP Gas Marketing Limited fined one million euros for manipulating the French gas market

 

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


- enter into transactions on the other side of the order book.

 

According to the ACER, these behaviours are always manipulative because they:


- give or are likely to give false or misleading signals to the market as to the status of supply or demand in the order book; and/or


- secure or attempt to secure the price of a wholesale product at an artificial level (price positioning).

 

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”);


- market participant may issue orders at varying price levels “reflecting different willingness to buy or sell at diverse prices”.

 

Recent example of sanctioning an order-based manipulative behaviour of the type layering/spoofing is a fine of one million euros imposed on BP Gas Marketing Limited (ACER Infoflash of 20 January 2020).

 

In its decision, published on 16 January 2020, the Dispute Settlement and Sanctions Committee (CoRDiS) of the French Energy Regulatory Commission (CRE) held that the company BP Gas Marketing Limited (BPGM) engaged in market manipulation on the French Southern virtual Gas Trading Point (PEG Sud) between 1st October 2013 and 1st March 2014.

 

CoRDiS found that BPGM engaged, over the course of 56 instances spread over 37 trading days, in market manipulation consisting in a combination of trading behaviours including:
- layering a minimum of three sell orders throughout the trading day while placing iceberg orders hiding important volumes on the buy side of the order book;
- back-and-forth transactions within a short period of time that do not seem to follow a rational economical background;
- large cancellation or price lag of its sell orders (placing orders at a price far from the bid/ask spread to avoid their execution).

 

According to CoRDiS, BPGM’s behaviour was likely to send false or misleading signals to the market as to the supply and demand, thus breaching Article 5 of REMIT which prohibits market manipulation (CoRDiS’ decision subject to an appeal under the French national law).

 

This decision follows a previous CoRDiS decision from October 2018 imposing a € 5 million fine on the company VITOL S.A. for engaging in a similar type of market manipulation on the PEG Sud.

 

Moreover, in September 2019, the Great Britain’s Gas and Electricity Markets Authority (Ofgem) also sanctioned a manipulative spoofing by the company Engie Global Markets for around € 2.3 million.

 

 


 

 

chronicle

Spoofing/layering - regulatory chronicle 

 

 

 

 

BP Gas Marketing Limited fined one million euros for manipulating the French gas market

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

ACER 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, 22 March 2019

 

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

 

Ofgem fines Engie Global Markets (EGM) £2.1 million, 5 September 2019

 

Finding that Engie Global Markets has breached Article 5 (prohibition on market manipulation) of Regulation (EU) No 1227/2011 of the European Parliament and of the Council of 25 October 2011 on wholesale energy market integrity and transparency (‘REMIT’)

 

CFTC Files Eight Anti-Spoofing Enforcement Actions against Three Banks (Deutsche Bank, HSBC & UBS) & Six Individuals

 

Statement of CFTC Director of Enforcement James McDonald

 

U.S. appeals court upholds trader's spoofing conviction 

 

 

 

 

 

clip2

    Links    

 

 

 

 

Market manipulation prohibition under REMIT

 

Wash trades as a REMIT market manipulation practice

 

Phishing

 

Capacity withholding
 

CME Notice of Disciplinary Action, 17 October 2018, COMEX 16-0475-BC-1

 

CME Notice of Disciplinary Action, 17 October 2018, COMEX 16-0582-BC