The Anti-Spoofing Statute: Vague As Applied to the 'Hypothetically Legitimate Trader'

Abstract

New technology has made it easier for commodity traders to place larger trades faster. However, this rise in high frequency trading has resulted in an increase in market manipulation tactics. Recently, many traders have adopted manipulative strategies such as spoofing. Spoofing involves placing an order with intent to cancel the order before execution. Armed with the new anti-spoofing statute in the 2010 Dodd-Frank Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), the government has cracked down on all trading activity that "is, is of the character of or is commonly known to the trade as 'spoofing. "' However, as the number of spoofing cases increase, many traders still fear that the anti-spoofing statute is impermissibly vague. Specifically, the broad-blanket provision that prohibits trading that "is of the character of' spoofing could encompass many legitimate trading activities. Additionally, the definition of spoofing itself is problematic because it does not explicitly state when the intent to cancel the order must arise.

In the first criminal spoofing case, United States v. Coscia, a district court held that the anti-spoofing statute was not impermissibly vague as applied to the defendant. This new precedent established that spoofing is not impermissibly vague in specific situations in which the intent to cancel is clearly manifest. In light of this decision, this Comment explores whether there are still situations in which the anti-spoofing statute remains impermissibly vague.

This Comment begins by exploring the history of spoofing and the birth of the anti spoofing statute. In doing so, it examines the impact that spoofing has on financial markets and business in general. It then explores those situations in which the anti-spoofing statute may still be considered impermissibly vague and recommends that the "is of the character of' language of the anti-spoofing statute be removed and that a new definition of spoofing be adopted.

Keywords: Coscia, criminal spoofing, anti-spoofing statute, Dodd-Frank, Frank Wall Street Reform, Consumer Protection Act, Doff-Frank Act, trade