Spoofing and its Regulation

68 Pages Posted: 10 Jan 2022 Last revised: 5 Mar 2024

See all articles by Merritt B. Fox

Merritt B. Fox

Columbia University - Law School

Lawrence R. Glosten

Columbia University

Sue S. Guan

Santa Clara University School of Law

Date Written: November 1, 2021


Nearly a century after the United States enacted its first securities laws, urgent questions remain as to the scope of manipulation law: whether manipulation is possible in principle, and if so, how the law should respond in practice. Sharp disagreement among courts, economists, and legal scholars as to whether trading or quoting activity constitutes illegal manipulation has led to a legal framework that lacks precision and cogency. Moreover, the poorly articulated normative basis for court rulings has resulted in enforcement that is both under-inclusive and over-inclusive in ways that do a poor job of discouraging socially harmful transactions and enabling socially beneficial ones.

This Article seeks to clarify this confusion. Drawing on microstructure and financial economics, this Article offers a new understanding of a common kind of quote-driven manipulation, often referred to as “spoofing.” By employing an analytical and normative framework developed previously by two of the authors in assessing another major form of manipulation, trade-driven manipulation, this Article assesses the impact of spoofing on what occurs in the securities markets and carefully evaluates its effects on social welfare and economic efficiency. The result is a new understanding of quote-based manipulation that helps resolve essential questions in manipulation law and provides guidance for future regulation and enforcement.

Keywords: spoofing, quote manipulation, market manipulation, microstructure, securities regulation, market efficiency

Suggested Citation

Fox, Merritt B. and Glosten, Lawrence R. and Guan, Sue, Spoofing and its Regulation (November 1, 2021). Columbia Business Law Review, Forthcoming, Columbia Law and Economics Working Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4002696

Merritt B. Fox

Columbia University - Law School ( email )

435 West 116th Street
New York, NY 10025
United States

Lawrence R. Glosten

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Sue Guan (Contact Author)

Santa Clara University School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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