What Spoofing Is
Spoofing involves placing orders with the intent to cancel them before execution — creating a false impression of supply or demand to move prices. The Dodd-Frank Act explicitly prohibits spoofing in commodity markets; similar prohibitions apply in securities markets under anti-manipulation rules. The DOJ and CFTC have brought criminal and civil charges against traders at major financial firms for spoofing.
What Layering Is
Layering is a related tactic involving multiple orders at different prices to create a false appearance of depth in the order book, which is then cancelled after prices move. Like spoofing, layering is prohibited as market manipulation. FINRA and the SEC have brought enforcement actions against firms and individuals for layering in equity markets.
Regulatory Enforcement Record
Multiple major financial firms — including banks, broker-dealers, and trading firms — have settled charges related to spoofing or layering. The Ethics Reporter notes that any claim about Citadel Securities specifically engaging in spoofing must be based on documented regulatory findings, not inference. The firm's publicly documented regulatory record covers the specific actions described in this series.
The Role of Market Surveillance
FINRA's cross-market surveillance and the SEC's analytics tools are specifically designed to detect manipulation patterns including spoofing and layering. The development of the Consolidated Audit Trail — which provides complete order lifecycle data — enhances regulators' ability to detect these patterns. Market participants with compliance obligations must have adequate controls to prevent manipulative trading.