Market Manipulation and Spoofing

A securities firm or other financial institution passes client orders on to an exchange, trades for the firm's own account, and reviews trades for problems. In each of these activities, it needs to know which orders and trades may fall under a prohibited type under the law.

What the rules prohibit

Market manipulation is conduct that tampers with a market price that should be set by the supply and demand of sellers and buyers¹. It takes forms such as making trading look active, moving the price through trades, and spreading word that the price is being moved by manipulation. It obstructs fair price formation and causes unexpected losses to other investors, which is why the Financial Instruments and Exchange Act (FIEA) prohibits it².

Japan's FIEA and the Commodity Derivatives Transaction Act are described in the versions obtained on October 3, 2026, and the EU Market Abuse Regulation in the text as adopted in 2014.

Prohibited conduct under the FIEA

The FIEA prohibits unfair trading such as unlawful acts, spreading rumors, and market manipulation. Market manipulation is covered by the provision headed "Prohibition of market manipulation, etc.", and the prohibitions of unlawful acts and of spreading rumors or using fraudulent means are related prohibitions³.

"Sham transactions", "transactions by prior arrangement", and "price-moving trading" are names that the Securities and Exchange Surveillance Commission uses in its casebook on administrative surcharges (the "casebook"). The statute itself has no such names⁴. The prohibition of market manipulation covers sales and purchases of securities, market derivatives transactions, and over-the-counter derivatives transactions. The sales and purchases of securities are limited to listed securities and the like (including over-the-counter traded securities and handled securities). The over-the-counter derivatives transactions are limited to those relating to listed financial instruments or listed indicators and the like⁵.

The provisions on sham transactions and transactions by prior arrangement list sham transactions and transactions made by arrangement, according to the type of transaction, and also prohibit entrusting and accepting them⁶. The provisions on sham transactions, transactions by prior arrangement, and price-moving trading require a purpose of misleading or inducing others. The fact that an order was canceled does not by itself make a violation. The purpose is what is examined.

Insider trading is prohibited by separate provisions, not by the market manipulation provisions⁷.

Figure description

Answer the questions from the top. If the answer to a question is "Yes", the chart goes to the type for that question. If it is "No", the chart goes to the next question. The type reached from question 2 is price-moving trading, which is where spoofing may fall. If none of the four questions is answered "Yes", the chart ends at the last result, "Outside the types in the table". "Para." in the boxes means paragraph of Article 159.

The questions are shortened to fit the boxes, so here is each one in full. Question 1 asks whether a person makes sham transactions, or transactions arranged in advance, in order to lead others to believe that trading is active. Question 2 asks whether a person, in order to induce others to trade, makes a series of transactions (including applications for them) that make trading look active or that move the price. Question 3 asks whether a person, in order to induce others to trade, spreads word that the price is being moved by manipulation, or knowingly makes a false or misleading statement on a material matter. Question 4 asks whether a person, contrary to a Cabinet Order, makes a series of transactions for the purpose of pegging, fixing, or stabilizing the price. The "purpose of inducing others to trade" in questions 2 and 3 is the same purpose. The purpose in question 1 is, in the statute, a purpose of misleading others about the state of trading in general, and the question covers only the case of leading them to believe that trading is active.

The chart does not show some conditions. The range of transactions covered, entrusting and accepting, the prohibitions of unlawful acts and of spreading rumors, and the Commodity Derivatives Transaction Act are outside the chart. Whether the purpose is met is decided by the authorities or the courts in each case.

Applying the types to examples

Consider a hypothetical example in which the transactions are market derivatives transactions on an exchange market and no other conditions are assumed.

In Example 1, Securities Firm X (fictional) wants to sell exchange-traded futures for its own account. It lines up thick buy orders so that the executed price rises, has its own sell executed after the price rises, and then cancels all of its buy orders, which it never intended to have executed. In this example, assume that it has the purpose of inducing other investors to trade. The firm meets both conditions of question 2, the purpose of inducing others to trade and a series of transactions (including applications) that move the price, so this is a type that may fall under price-moving trading. Points such as "canceling all the orders on the opposite side immediately after execution" and "repeating the same conduct" are inputs to the judgment.

In Example 2, Securities Firm X placed a buy order on the exchange that a client had left with it. It intended to have the order executed, and had no purpose of inducing other investors to trade. Later the market changed, and the order was canceled on the client's instruction. The purpose condition in question 2 is not met. The example assumes no facts that would answer "Yes" to questions 1, 3, or 4, so the chart ends at "Outside the types in the table." A violation does not arise from the fact of cancellation alone, and the purpose is what is examined.

Criminal penalties, administrative surcharges, and damages

A violation of the prohibition of market manipulation draws three kinds of sanctions.

The surcharge is calculated from the difference between the sales and the purchases made during the period of the violation and from the price in the month after the violation ends. As a result, the amount can exceed the actual profit¹¹. There is also a provision for confiscating property obtained through criminal conduct¹².

Transactions in commodities

The criminal penalty is lighter when a violation of the market manipulation provisions or similar provisions concerns only market derivatives transactions on commodities conducted on a financial instruments exchange market (called "commodity-related market derivatives transactions" in the FIEA's definition). It is imprisonment of up to 5 years or a fine of up to 5 million yen, which may be imposed together, and a fine of up to 500 million yen for a corporation¹³.

Transactions on a commodity market that a commodity exchange opens are governed by the Commodity Derivatives Transaction Act. Its provision headed "Prohibition of sham transactions, transactions by prior arrangement, etc." prohibits the following conduct¹⁴.

• Sales and purchases not aimed at transferring ownership of a listed commodity, sham transactions, and transactions made under a false name
• Transactions arranged in advance
• A series of transactions that gives a false impression that trading is active, or a series of transactions that moves the price
• Transactions outside the market in components of listed commodities and the like, for the purpose of moving the price on the commodity market
• Spreading word that the price is being moved by market manipulation
• Knowingly making a false or misleading statement on a material matter
• Entrusting and accepting these transactions

For a violation, there is a provision on damages as in the FIEA¹⁵. The criminal penalty is imprisonment of up to 5 years or a fine of up to 5 million yen, which may be imposed together, and a fine of up to 500 million yen for a corporation¹⁶.

When excessive trading or unfair prices are likely to arise from cornering or bear raids and the like, the competent minister can order members and others to restrict transactions, and order a commodity exchange to take measures limiting price movements or the quantity of open positions¹⁷. The Commodity Derivatives Transaction Act as a whole is covered in The Commodity Derivatives Transaction Act.

Spoofing: definition and typical methods

Spoofing is the placing of buy or sell orders that the person does not intend to have executed, in order to make other investors believe that the price is natural and to draw them into trading¹⁸. In Japan, the statute has no name for it (it is called "misegyoku" in practice), and it is treated as conduct that may fall under price-moving trading. That provision also covers the "application" for a series of transactions, so conduct that consists only of placing orders, with no execution, is included¹⁸¹⁹.

Consider a hypothetical example in which participant A wants to sell futures and the numbers are made up.

In this example, a participant who bought 20 contracts at 304 has an unrealized loss of 4 per contract, or 80 for the 20 contracts, if the traded price returns to 300. A's selling price is 4 per contract higher than it would have been if A had sold at 300. This sequence explains the mechanism of the conduct that the FIEA prohibits. A can also lose. The orders in step 2 become real purchases if they are executed. If the traded price falls to 297 and the 600 contracts are executed at 297, and the price then falls further to 290, A has an unrealized loss of 7 per contract, or 4,200 for the 600 contracts.

The Securities and Exchange Surveillance Commission has shown five points for judging spoofing, and four of them are the following²⁰. The requirement is the purpose, and these points are only one input to the judgment.

• Immediately after the person's own sell order (or buy order) is executed, the person cancels all the orders on the opposite side
• The price range and quantity have the effect of making the order book look thick and attracting other participants' orders
• The same conduct is repeated
• The person places an excessive volume of orders in light of the scale of the person's normal trading

The exchange also watches, as a type that may lead to unfair trading, the case in which a person moves the expected execution price with orders placed before the opening or before the close and then cancels the orders or reduces their quantity²¹.

Rules in the US, the EU, and the UK

The way spoofing is positioned differs by country, as the statutes are drafted differently.

The orders given as examples in the EU are those that disrupt the trading system, make it more difficult to identify genuine orders, or create a false signal.

In the US, the transactions covered differ by provision. The spoofing prohibition of the Commodity Exchange Act covers transactions on or subject to the rules of a registered entity. Registered entity is the statute's term, and it collectively covers a designated contract market, a registered swap execution facility (SEF), a registered clearing organization, a registered swap data repository (SDR), and others. The price manipulation prohibition of the same Act extends to swaps, commodities in interstate commerce, and the price of futures on or subject to the rules of a registered entity²²²³.

The sanctions are as follows.

The MAR requires Member States to set the maximum fine at no less than EUR 5 million for a natural person, and no less than EUR 15 million or 15% of annual turnover for a legal person. Where the profit gained or loss avoided can be determined, a maximum of at least three times that amount is also required³⁰. In the UK revised version, the MAR provision on administrative sanctions was omitted on December 31, 2020²⁸.

What is distinctive about derivatives

What is distinctive about derivatives shows in how broad the scope of the provisions is.

• The Commodity Derivatives Transaction Act also prohibits transactions outside the market that are made for the purpose of moving the price on a commodity market¹⁴.
• The EU MAR covers financial instruments traded on a trading venue or admitted to trading, and also financial instruments whose price or value depends on or has an effect on such instruments (the text gives credit default swaps and contracts for difference as examples). The prohibition of market manipulation also reaches conduct relating to spot commodity contracts and to benchmarks³².
• The market manipulation prohibition of the US Exchange Act covers transactions that include security-based swaps²⁵.

The treatment of exchange-traded and over-the-counter transactions differs by region.

In the US, the spoofing prohibition does not reach transactions outside a registered entity. The price manipulation prohibition also reaches swaps²³.

For crypto-asset-related derivatives transactions, the FIEA contains provisions of the same kind, and the prohibition of market manipulation does not apply to those transactions³³. These are covered in Crypto-Asset Derivatives.

Surveillance and enforcement

Figure description

"Commission (SESC)" is the Securities and Exchange Surveillance Commission, and "Exchange Regulation" is Japan Exchange Regulation. Steps 1 to 3 run in the order of trade surveillance analysis, a report to the Commission, and the Commission's investigation. In step 4 the process splits into two branches: when the investigation finds a violation of law, it leads either to a recommendation that a surcharge payment order be issued, or to the Commission filing a criminal accusation. The chart does not show the trade surveillance that securities firms carry out and the information they provide, or the surveillance under the Commodity Derivatives Transaction Act.

Japan Exchange Regulation analyzes, every day, whether market manipulation or other unfair trading is taking place in the cash market of the Tokyo Stock Exchange and the derivatives market of the Osaka Exchange. The targets are issues whose prices or trading volumes moved sharply and issues on which information was provided, and this work is called trade surveillance. All trading suspected of being unfair is reported to the Securities and Exchange Surveillance Commission³⁴.

The Securities and Exchange Surveillance Commission receives a delegation of part of the Commissioner of the Financial Services Agency's powers under the FIEA, and also has the power to investigate criminal cases³⁵. When it finds a violation of the law, it recommends that the Prime Minister and the Commissioner of the Financial Services Agency issue an administrative surcharge payment order, or it files a criminal accusation³⁶. The Commission explains that a client that made problematic trades can be identified early by analyzing trading data from exchanges and securities firms³⁶. Securities firms are also required to conduct trade surveillance, and when they find a problematic trade, they warn the client and, as necessary, provide information to the exchange or the Securities and Exchange Surveillance Commission³⁶.

The EU MAR requires operators of trading venues to have systems to prevent and detect market manipulation. Orders and transactions (including cancellations and modifications) that are suspected of being market manipulation are reported to the competent authority without delay. Persons professionally arranging or executing transactions must also have systems to detect and notify suspicious orders and transactions. Orders placed on or outside a trading venue are covered³⁷.

A published case

The June 2024 edition of the casebook (fiscal 2023) includes a case of placing orders without the intention to execute them in an over-the-counter derivatives transaction. It was a matter in which an administrative surcharge payment order was recommended, and the subject was an individual residing overseas. On the three trading days from September 4 to 6, 2019, in securities CFD transactions (contracts for difference) based on Japanese shares as the underlying asset, the individual was found to have engaged in conduct falling under price-moving trading³⁸.

The individual piled up sell orders near the best offer to thicken the sell side of the order book, bought at the lower prices, and then canceled those sell orders. The individual then piled up buy orders near the best bid to thicken the buy side, and sold at the higher prices, and the cycle repeated³⁸.

The overseas bank on the other side of these transactions had a mechanism under which, when it received an order for a securities CFD, it mechanically placed an order of the same content for Japanese shares on the exchange through a securities firm group. An application for a securities CFD transaction was therefore reflected as an order on the exchange³⁸. The casebook describes the case as the second administrative surcharge recommendation for market manipulation through an over-the-counter derivatives transaction. The investigation proceeded with support from eight overseas authorities, the most ever, and with the cooperation of Japan Exchange Regulation³⁸.

Firm arrangements and the impact on practice

Passing on orders, trading for the firm's own account, and reviewing trades each connect to trade surveillance by exchanges and securities firms in Japan, and to the systems for notifying suspicious orders and transactions in the EU³⁴³⁶³⁷.

What this page does not cover

US civil sanctions are not covered on this page.

Notes

1. Securities and Exchange Surveillance Commission Secretariat, "令和５年度 金融商品取引法における課徴金事例集～不公正取引編～" (Fiscal 2023 casebook on administrative surcharges under the FIEA: unfair trading), June 2024 (in Japanese), "Ⅲ 相場操縦" (Market manipulation), "１ 相場操縦規制について", "⑴ 規制の趣旨" (Purpose of the rules) (printed page 50). ↩

2. Japan Exchange Group, "相場操縦規制" (Market Manipulation Regulation) (in Japanese; updated December 3, 2025), "相場操縦取引とは" (What is market manipulation trading). ↩

3. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 157 (Prohibition of unlawful acts), Article 158 (Prohibition of spreading rumors, using fraudulent means, assault, or intimidation), and Article 159 (Prohibition of market manipulation, etc.). ↩

4. The casebook, "Ⅲ 相場操縦", "１ 相場操縦規制について", "⑵ 規制の概要" (Outline of the rules) (printed pages 50–51). It organizes Article 159, paragraph 1 as "sham and arranged transactions" (仮装・馴合売買), paragraph 2 as "price-moving trading" (変動操作取引), and paragraph 3 as "unlawful stabilizing transactions" (違法な安定操作取引). ↩

5. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 159, paragraph 1, opening part (the transactions covered, and the range of sales and purchases of securities and of over-the-counter derivatives transactions), and the opening part of paragraph 2 (definition of "sales and purchases of securities, etc.", 有価証券売買等). ↩ ↩²

6. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 159, paragraph 1, items 1 to 3 (sham sales, purchases, and transactions), items 4 to 8 (sales and purchases arranged in advance, etc.), and item 9 (entrustment, etc. and acceptance, etc.). ↩

7. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Articles 166 and 167. ↩

8. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 197, paragraph 1, item 5 (violations of Articles 157, 158, and 159, excluding violations that relate only to commodity-related market derivatives transactions), and Article 207, paragraph 1, item 1 (fine of up to 700 million yen on a corporation). ↩

9. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 174 (violation of Article 159, paragraph 1), Article 174-2 (violation of Article 159, paragraph 2, item 1), and Article 174-3 (violation of Article 159, paragraph 3). The opening part of paragraph 1 of each article names the Prime Minister as the one who issues the order. ↩

10. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 160, paragraph 1 (liability for damages) and paragraph 2 (expiry one year after learning of the violation and three years after the act). ↩

11. The casebook, "監視委コラム" (Commission column), "3 再度の違反行為は課徴金額が 1.5 倍" (A repeat violation raises the surcharge by a factor of 1.5) (printed page 5). The calculation provisions are in the items of Article 174-2, paragraph 1 of the FIEA. ↩

12. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 198-2, paragraph 1, item 1 (confiscation of property obtained through the criminal conduct in the offenses of Article 197, paragraph 1, item 5 and Article 197-2, paragraph 1, item 13). The proviso allows the court not to confiscate when confiscation is not appropriate. ↩

13. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 197-2, paragraph 1, item 13 (violations of Articles 157 to 159 that concern only commodity-related market derivatives transactions) and Article 207, paragraph 1, item 2 (fine on a corporation). The definition of commodity-related market derivatives transactions is in the parenthetical of Article 2, paragraph 8, item 1. ↩

14. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 116, items 1 to 5 (sham transactions, transactions by prior arrangement, and the like on a commodity market, and entrustment and acceptance of these), item 6 (transactions outside the market), item 7 (spreading word), and item 8 (false or misleading statements). ↩ ↩²

15. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 117, paragraph 1 (liability for damages) and paragraph 2 (expiry one year after learning and three years after the act). ↩

16. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 356, item 1 (spreading rumors, fraudulent means, assault, and intimidation) and item 2 (violation of Article 116), and Article 371, item 1 (fine of up to 500 million yen on a corporation). ↩

17. "商品先物取引法" (Commodity Derivatives Transaction Act, in Japanese; English translation: Japanese Law Translation), Article 118, item 1 (restriction of transactions by members and others) and item 2 (measures taken by the commodity exchange). Item 3 is a provision under which a commodity clearing organization is ordered to change the amount of the transaction margin and the like. ↩

18. Japan Exchange Group, "相場操縦規制" (Market Manipulation Regulation) (in Japanese), "相場操縦取引のFAQ" (FAQ on market manipulation trading), A6 (見せ玉, spoofing in Japan). It may fall under Article 159, paragraph 2, item 1, including conduct consisting only of placing orders. ↩ ↩² ↩³

19. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 159, paragraph 2, item 1. ↩

20. Japan Exchange Group, "相場操縦規制" (Market Manipulation Regulation) (in Japanese), "相場操縦取引のFAQ", A6. The page lists the factors for judging spoofing that the website of the Securities and Exchange Surveillance Commission shows. ↩

21. The same page, "不公正取引に繋がるおそれのある取引" (Transactions that may lead to unfair trading), "寄付き前の見せ玉" (spoofing before the opening) and "特殊見せ玉" (special spoofing). ↩

22. 7 U.S.C. § 6c(a)(5)(C) ("spoofing"). It covers transactions "on or subject to the rules of a registered entity", and registered entity is defined in 7 U.S.C. § 1a(40). ↩ ↩² ↩³

23. 7 U.S.C. § 9(1) (prohibition on the use of a manipulative or deceptive device in connection with swaps, contracts of sale of commodities in interstate commerce, and futures contracts on or subject to the rules of a registered entity) and § 9(3) (prohibition on manipulating the price of swaps or commodities). ↩ ↩² ↩³

24. 17 CFR § 180.1(a) (prohibition on intentionally or recklessly using a manipulative device or engaging in a deceptive act or the like in connection with swaps, contracts of sale of commodities in interstate commerce, and futures contracts) and § 180.2 (prohibition on price manipulation). The eCFR version as of September 30, 2026. ↩

25. 15 U.S.C. § 78i(a)(1) (transactions involving no change in beneficial ownership, and the matching of orders of the same size and price) and (a)(2) (a series of transactions creating active trading or raising or depressing prices; includes security-based swaps). ↩ ↩²

26. Regulation (EU) No 596/2014 (April 16, 2014; text as adopted), Article 12(1)(a) to (d) (definition) and Article 12(2)(c) (orders to a trading venue, including orders from algorithmic and high-frequency trading). ↩ ↩²

27. Regulation (EU) No 596/2014, Annex I, A(f) (the extent to which orders are withdrawn before execution after the best bid or offer quotes, or the order book display, are changed). The text states that an indicator does not by itself necessarily mean market manipulation. ↩

28. Regulation (EU) No 596/2014, the revised version on legislation.gov.uk ("Latest available (Revised)"), Articles 12, 15, and 16, Annex I, and the note on Article 30 ("omitted (31.12.2020)"). ↩ ↩²

29. 7 U.S.C. § 13(a)(2) (manipulation or attempted manipulation of the price of a commodity, futures, or swaps, and knowing violation of § 6c(a) to (e), are felonies punishable by a fine of up to USD 1,000,000, imprisonment of up to 10 years, or both, together with the costs of prosecution). ↩

30. Regulation (EU) No 596/2014, Article 30(1)(a) and (2)(a) to (j). A violation of Article 15 falls under paragraph 1(a). ↩ ↩²

31. Financial Services and Markets Act 2000, section 123(1)(a) (contravention of the MAR), (2) (penalty), and (3) (statement of censure). The revised version on legislation.gov.uk. ↩

32. Regulation (EU) No 596/2014, Article 2(1)(a) to (d) (point (d) gives "credit default swaps and contracts for difference" as examples), Article 2(2)(a) to (c), and Article 2(3) (on or outside a trading venue). ↩ ↩²

33. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Articles 185-22 to 185-24 (Article 185-24, paragraph 3 provides that Article 159 does not apply to derivatives transactions relating to crypto-assets and the like). ↩

34. Japan Exchange Group, "相場操縦規制" (Market Manipulation Regulation) (in Japanese), "相場操縦取引の監視" (Monitoring of market manipulation trading). ↩ ↩²

35. "金融商品取引法" (Financial Instruments and Exchange Act, in Japanese; English translation: Japanese Law Translation), Article 194-7, paragraph 2 (delegation of powers from the Commissioner of the Financial Services Agency to the Securities and Exchange Surveillance Commission) and Article 210, paragraph 1 (investigation of criminal cases by Commission staff). ↩

36. The casebook, "Ⅲ 相場操縦", "１ 相場操縦規制について", "⑷ 証券監視委からのメッセージ" (Message from the Commission) (printed page 52). The addressees of recommendations are stated in "Ⅰ 課徴金勧告の件数及び課徴金額" (Number of surcharge recommendations and amount of surcharges) (printed page 1) of the same casebook as the Prime Minister and the Commissioner of the Financial Services Agency. ↩ ↩² ↩³ ↩⁴

37. Regulation (EU) No 596/2014, Article 16(1) (operators of trading venues and investment firms; reporting of orders and transactions includes cancellations and modifications) and Article 16(2) (persons professionally arranging or executing transactions; on or outside a trading venue). Text as adopted. ↩ ↩²

38. The casebook, "Ⅲ 相場操縦", "３ 令和５年度における相場操縦の個別事例" (Individual cases of market manipulation in fiscal 2023), case 9 (printed pages 62–63), and "２", "⑸ クロスボーダー事案の特色" (Features of cross-border cases) (printed page 56). ↩ ↩² ↩³ ↩⁴