U.S. regulators have grown so concerned that traders are using high-speed computers to manipulate markets that they're planning a new tactic to clamp down on the practice—rating brokers on how much spoofing flows through their order books.
The Financial Industry Regulatory Authority (Finra) said it plans to issue report cards this year that will grade firms on how many phony bids to buy or sell stock they might have a role in facilitating. Finra, a market cop funded by Wall Street, expects brokers to use the assessments to root out any misconduct, the regulator said Tuesday in its annual letter on exam priorities. The reports won't be made public.
Spoofers flood a market with fake orders that entice other traders to change their posted prices, then cancel their orders and profit by buying or selling at the artificially low or high prices they induced. Finra's plan to write up report cards shows how deeply regulators fear the bait-and-switch has infected trading following high-profile cases such as that of London's Navinder Sarao, who was arrested in April after authorities accused him of spoofing that contributed to the 2010 flash crash for U.S. stocks.
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