The Financial Industry Regulatory Authority (FINRA), the US self-regulatory organization serving the NYSE, Nasdaq and other US-based exchanges, has submitted a proposal to the US Securities and Exchange Commission to sanction trading practices commonly known as “spoofing” and “layering.”
FINRA has proposed adding provisions to Rule 5210 of the US Securities Exchange Act of 1934 allowing the authority to issue cease and desist orders in response to parties who enter multiple limit orders that change supply and demand for a security, and are executed, but then canceled (spoofing), and to parties who narrow spreads of securities by placing orders inside the national best bid and offer (NBBO), then placing orders on the opposite side of the market that execute against market participants who interacted with the first orders inside the NBBO (layering).
In FINRA’s submission to the SEC, the authority stated that it plans to begin implementing its proposal for markets it oversees and for markets it regulates under service agreements, within 30 days of FINRA’s November 15 filing of the proposal with the SEC.
Cease and desist orders may be temporary or permanent, and hearings on specific cases can be held, according to FINRA’s proposal. Those who violate such orders, however, may have their FINRA association or membership canceled, or face disciplinary sanctions, the proposal said.
FINRA’s proposal is similar to provisions already put in place by Nasdaq and the BATS Exchange for their markets.
