Summary

Situation Overview: Domestic and foreign regulators continue to pursue actions against firms for spoofing and market manipulation activities.

What: There is a continuing need for vigilance in detecting and preventing spoofing, particularly through the use of effective trade surveillance and advanced data analytics.

Who: Broker-dealers, futures commission merchants, and banks.

In Depth

As recently as September 2025, the financial industry saw a number of Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and foreign regulators bring enforcement actions related to spoofing. This included cases against individuals, as well as financial institutions. The cases are evidence that regulators continue to view the identification and prevention of this activity as a priority, and firms and individuals will be held accountable for this fraudulent activity. The SEC’s Division of Enforcement has publicly stated that it plans to renew and increase its focus on individual liability, an evergreen priority for the Division.

Spoofing is a manipulative trading practice where a trader places orders with the intent to cancel them before execution (spoof orders) to deceive the market about supply or demand. The spoofer often profits from genuine orders executed on the opposite side of the market (genuine orders). Because spoofing undermines fair price discovery, many jurisdictions treat it as a form of market abuse or manipulation. In the United States, for example, although there is no standalone “spoofing” statute for the securities market, regulators use anti-fraud and market manipulation rules (e.g., Section 10(b) of the Exchange Act) to pursue spoofing schemes. On the derivatives side, the Commodity Exchange Act explicitly prohibits spoofing in commodity and futures markets. In the United Kingdom, the Financial Conduct Authority (FCA) pursues spoofing schemes under Articles 12(1)(a)(ii) and 15 of the Market Abuse Regulation, among other avenues.

One of the fundamental challenges in proving spoofing is establishing intent: that the trader placed the order not to execute, but to cancel, from the outset. Mere cancellation is not enough. Regulators and enforcement agencies often must rely on patterns of order behavior (such as placing large orders, or orders that are unlikely to be filled) to infer manipulative intent.

Despite these challenges, regulators are monitoring, conducting investigations, and bringing enforcement cases related to this form of market manipulation. On August 11, 2025, the SEC filed settlement charges against a former day trader (trader) for spoofing thinly traded options across multiple exchanges between September 2020 and February 2022. The SEC alleged that the trader placed orders significantly below the best offer or above the best bid, often across neighboring options series tied to the same underlying security, without intending to execute them. The trader then placed genuine orders on the opposite side, frequently on different exchanges, and profited from the cross-venue price movements the spoofing created. The trader was required to pay a disgorgement of $234,803 plus prejudgment interest of $52,656, and a civil penalty of $70,441.

On September 9, the CFTC sanctioned an individual and unregistered firm for spoofing E-mini-S&P 500 and Nasdaq-100 futures from May through December 2022. In inferring intent, the CFTC stated that the trader’s spoof orders typically constituted orders resting at the highest price levels at the time such orders were placed. The CFTC also noted that while the trader received fills on approximately 88% of the genuine orders, approximately only 2% of the total number of contracts in all of the trader’s spoof orders were filled. The individual and his firm were required to pay a civil penalty.

On September 18, the Department of Justice (DOJ) resolved a criminal investigation involving two traders from a large financial institution, together placing more than 1,000 spoof orders in U.S. Treasuries and related futures between 2014 and 2020. In light of the firm’s voluntary disclosure, cooperation, and remediation, the DOJ declined prosecution but required disgorgement of $1.96 million and a $3.6 million victim-compensation payment.

Across the Atlantic, the U.K.’s Upper Tribunal upheld on July 1, 2025, an FCA decision in 2022 to ban and fine three traders for spoofing Italian government bond futures. The FCA originally found that the traders coordinated to place large spoof orders they did not intend to execute, often at the highest buy or lowest sell prices, to mislead market participants and facilitate execution of smaller genuine orders. The Tribunal agreed with the FCA’s decision, describing the traders’ strategy as “dishonest” and lacking integrity.

These cases underscore several important points as you consider regulator appetite for enforcement cases. These cases demonstrate that regulator investigations and subsequent enforcement actions extend beyond large or systemic market participants, as even relatively modest-dollar cases are being brought and settled. Additionally, enforcement cases brought are of different asset classes and often involve cross-venue manipulation.

It should also be noted that if regulators are monitoring for spoofing, they are also monitoring for other types of market manipulation. Now is the time for firms to review their trade surveillance program to ensure it meets regulatory expectations, and that proper follow-up and periodic reviews are taking place to prevent or mitigate potential market abuse. Maintaining a program that has not been periodically reviewed and updated to address changes in order management systems, technology, new products, and new market abuse patterns will not be a sufficient defense in an enforcement inquiry. These cases reinforce the need for firms to maintain robust and adaptive trade surveillance programs. Trade surveillance programs should be supported by advanced data analytics and clear escalation protocols, to detect, investigate, and prevent spoofing and other manipulative practices across diverse products and trading patterns.

Put Patomak’s Expertise to Work

Patomak has partnered with financial institutions across jurisdictions of all sizes, business models, asset classes, and surveillance systems (including vendor systems) to assess and enhance trade surveillance systems and programs. Patomak’s work has included reviewing coverage of trading venues, completeness of surveillance coverage, surveillance parameter setting per asset class and market abuse topics; updating trade surveillance policies and procedures; and assisting in obtaining a surveillance vendor.

If you are looking for a partner to review, assess, or implement an effective trade surveillance framework, please reach out to Laura Magyar at lmagyar@patomak.com.