No, it’s not an exam question, just a rhetorical question. This week, the FSA has, according to the Financial Times, “fired a warning shot across London’s share markets, calling on trading firms to be alert to a practice known as ‘spoofing’, which the regulator fears could be a form of market abuse.”
As industry watcher John Lothian pointed out in the US – where spoofing is better known as flashing – stopping this practice is akin to outlawing bluffing in poker. It may be annoying at times, but I’m sure many an FX trader has tried to spoof the market at some point. But it seems the equity markets can’t cope.
On a similar note, I was puzzled a few years back, when Citi got into trouble after whacking the world and its brother in European government bonds on MTS. I likened it to a heavyweight boxer taking on a lightweight; eventually the big boy will land a knockout blow, which shouldn’t surprise anyone. But a government bond mucker explained that I was wrong. “It might be OK in the FX market,” was the gist of what he said, “but it’s simply not the way to behave in fixed income.”