A typical method is to place a large number of buy orders across a range of prices, so that the order book looks buy-heavy. When other participants join the buying and the price rises, the person sells what the person holds and cancels the orders1.

In Japan, where the statute has no name for it, the conduct may fall under Article 159, paragraph 2, item 1 of the Financial Instruments and Exchange Act2. The US Commodity Exchange Act prohibits "spoofing", which it describes as bidding or offering with the intent to cancel the bid or offer before execution, in Section 4c(a)(5)(C)3.

Canceling an order does not by itself make it spoofing. What matters is whether the person intended the order to be executed, and whether the purpose was to induce others to trade. The article "Market Manipulation and Spoofing" covers this in more detail.

Notes

  1. Japan Exchange Group, "相場操縦規制" (Market Manipulation Regulation), "不公正取引に繋がるおそれのある取引" (Transactions that may lead to unfair trading), the example of "見せ玉" (in Japanese). ↩

  2. Japan Exchange Group, "相場操縦規制" (Market Manipulation Regulation), "相場操縦取引のFAQ" (FAQ on market manipulation), A6 (spoofing) (in Japanese). ↩

  3. 7 U.S.C. § 6c(a)(5)(C). The statutory wording is "spoofing (bidding or offering with the intent to cancel the bid or offer before execution)". ↩