When Is a Bid or Offer a 'Spoof'?

This article analyzes the confusion faced by commodity futures traders in assessing whether their trading strategies constitute illegal spoofing, which could land them in jail for up to 10 years, and examines whether the CFTC and Seventh Circuit have provided sufficient guidance on the distinction between spoofing and legitimate trading activity. It also explains why the Supreme Court's recent decision to not grant Coscia's petition for writ of certiorari, in which he argued that the anti-spoofing statute is unconstitutionally vague, will have significant consequences for the many spoofing actions currently pending before the courts, as well as for commodity futures trading in general.

The Anti-Spoofing Statute in Dodd-Frank

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), Pub. L. No. 111-203, 124 Stat. 1376 (Jul. 21, 2010), which amended the Commodity Exchange Act and, for the first time, introduced a specific prohibition on a trading practice referred to as “spoofing.” See, D. Deniz Aktas, “Spoofing,” 33 Rev. Banking & Fin. L. 89, 89 (Fall 2013). This anti-spoofing statute states: “It shall be unlawful for any person to engage in any trading practice, or conduct … [that] is, is of the character of, or is commonly known to the trade as, 'spoofing' (bidding or offering with the intent to cancel the bid or offer before execution).” 7 U.S.C. §6c(a)(5)(C).