Manipulate stock prices, artificially influence their value, get rich, and leave without a trace. All this in a blink of an eye. The perfect coup, the heist of the century...or almost. Because spoofing, a trading maneuver that illegally plays with the laws of the market, is formally prohibited.
Orders transmitted automatically at very, very high speed using ultra-sophisticated algorithms, where human intervention has no place. A technological evolution that inflates the gains of operators by analyzing and anticipating trends in a flash. But it is also a loophole into which spoofers have pounced.
And if since 2010 and the Dodd-Franck Act, the SEC and the CFTC have been monitoring and condemning this illegal practice, it remains very difficult for regulators to catch the fraudsters. The speed of execution is so fast... that it is almost untraceable.
This sample , inspired by real facts and drawn from the heart of our documentary resources, this timeline of perfect spoofing is symptomatic of the abuses generated by high-frequency trading (HFT), which now governs exchanges on financial markets.
Pay close attention, it goes pretty fast.
We are on July 20, 2009, it is 7:47:05 a.m.
John(1) , trader for a big US bank in the heart of the City of London, greets his colleagues with a wink and inserts a few coins in the coffee machine at the end of the corridor. A long black coffee without sugar, as he likes it. While waiting for the machine to spit out its cup of joe, Eric returns to his office overlooking the Thames.
At 7:47:13 a.m.: while thinking about the sunny weekend ahead, the trader places a buy order on the precious metals market. 400 lots of a futures contract at a unit price of $8,000. So far so good.
At 7:47:15 a.m: John launches a new order for this same contract. For sale this time. And in significantly larger proportions: 1,500 lots for a value of $12,000,000. Things are getting worse.
7:47:15 a.m: In the same microsecond, the trading algorithms of competing banks immediately detect this abnormally large financial movement. The alert is launched. Everything goes haywire. A massive sale is underway.
At 7:47:16 a.m: John cancels all his sell orders before final execution on the market. Not his competitors who, without even realizing it, do indeed separate themselves from their shares. A great general unloading which heavily influences the market trend and plunges the value of the lot which goes from $8 000 to... $7 000 the unit.
It is now 7:47:18 a.m: The automatically generated sell orders are executed. This is the moment our trader chooses to confirm his buy order placed 5 seconds earlier (remember: 400 lots at $8,000). Except that in the meantime, the price of the lot has dropped $1,000. Eric just saved his employer $400,000. (CQFD!)
At 7:47:21 a.m : John gets his coffee back. In a few seconds, he has manipulated the market to his advantage and made several hundred thousand dollars. The weekend is definitely looking bright.
(1) First name changed