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High-frequency spoofing, market fairness and regulation

Author

Listed:
  • Daniel Ladley

    (University of Leicester)

  • Nathalie Oriol

    (UNS - Université Nice Sophia Antipolis (1965 - 2019))

  • Iryna Veryzhenko

    (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM] - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université)

Abstract

Recent years have seen a number of cases of spoofing subjected to criminal prosecution by market authorities. In an artificial market setting, we study the feedback loop created between spoofing strategies and market dynamics. We analyze the impact on market quality and fairness and test regulatory measures to discourage market manipulation. Our results show that spoofing does not significantly affect market quality measures, but by inducing losses for other traders, it affects fairness. In addition, we show that spoofers are particularly attracted to uncertain environments (macroeconomic announcements) and high- capitalization, liquid securities. Finally, we find that introduction of a random market order execution delay is an effective way to make spoofing unprofitable and enhance market integrity.

Suggested Citation

  • Daniel Ladley & Nathalie Oriol & Iryna Veryzhenko, 2024. "High-frequency spoofing, market fairness and regulation," Working Papers hal-04409485, HAL.
    • Handle: RePEc:hal:wpaper:hal-04409485
    as

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