Market manipulation: what is spoofing?


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It is not today that you hear about "making money" or "getting rich" on the internet. These are some of the most searched phrases on Google, according to Google trends. According to this tool, in the last twelve months, the term “getting rich” has been used as a peak of popularity several times.

Not that there is any problem with wanting to get rich. The problem, however, may be linked to the search for each one - and the paths taken to achieve that life goal.

Many people, for example, arrive at the Financial Market believing that they will be able to increase, in a short time, the invested capital. This is also the case with cryptocurrencies and financial pyramids.

And it is in this context of searching for great returns in the market that some people resort to spoofing, an illegal practice that occurs in several countries around the world. In today's article you will learn a little more about spoofing and how it works.

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tajarat properties strives strives to be Pakistan's biggest real estate developer ever, guaranteeing the highest international standards, prompt execution, and lifetime customer loyalty. With projects like lahore smart city housing society

What is spofing?

Spoofing is a malicious or fraudulent technological practice that consists of sending disguised information or communication to a specific recipient.

Their use in e-mail is the most common, because in addition to not requiring authentication, they are more prone to fraud. Through this type of e-mail, the “attacker” can gain access to personal, banking, passwords, access codes, etc.

Spoofing also consists of manipulating information from TCP / IP packets, and can even forge them. In this form of fraud, it is possible to bypass access controls: the network or the person believes that the source of data sending is reliable, when the reality is quite different.

Financial market spoofing

When it comes to the financial market, fraud through spoofing occurs, most of the time, through “robots”, using algorithms on the stock exchange. These algorithms simulate the order of investors and appear in the order book as purchase and sale transactions that, in practice, do not exist.

Depending on the quantity of orders placed by these robots, these purchase or sale transactions carried out - in large volume - end up attracting the attention of investors, who may be influenced to buy or sell a certain asset.

The problem of spoofing, however, is at the end of the process. This is because, after sending these purchase or sale orders, the robot withdraws the orders before the transaction is completed. Market manipulation is currently taking place - an illegal practice.

What is the purpose of spoofing?

Now that you know how spoofing works, you must have understood the purpose of this practice in the market. In a simple way, it is possible to say that, when sending several buy and sell orders, for example, in the light of the supply and demand curve, the price of a share tends to fluctuate.

Therefore, the investor who uses this mechanism can benefit from this artificial oscillation.

Due to this dynamic of interference in the market - illegal practice, according to Art. 27-C of Law 10.303 / 01), spoofing is prohibited in Brazil and other countries in the world. This does not mean, however, that it does not occur.

CVM's role and spoofing in Brazil and worldwide

The CVM is an autarchy linked to the federal government, whose activity is to oversee, regulate, standardize and develop the securities market. It is the Securities and Exchange Commission, therefore, responsible for supervising the cases of spoofing in the country.

In Brazil, in March 2018, Joaquim Paiffer was ordered to pay a fine in the amount of R $ 684,000.00 for spoofing. The company Paiffer Management Ltda. - ME was also sentenced to pay a fine in the amount of R $ 1,710,000.00 for this illegal practice (you can check the case by clicking here).

Also last year, according to CNBC, Banco Alemão, UBS and HSBC were condemned to a fine of US $ 47 million due to practices involving their traders, who used spoofing in the gemstone market.

 “The Wolf of Wall Street” and market manipulation

Finally, when it comes to market manipulation, it is important to note that this is not a practice that emerged with the internet or with the technological tools available - although spoofing, on the other hand, is a recent practice.

The film “The Wolf of Wall Street” portrays this very well - showing that the illegal act of market manipulation, whether through spoofing or not, is old.

The feature tells the story of Jordan Belford (Leonardo DiCaprio), a broker at the New York Stock Exchange (USA) who achieved success through fraud, manipulation of numbers, and sale of shares in broken companies and persuasive calls that influenced customers.

After years of illegal practices on the stock exchange, Jordan was arrested and convicted by the FBI.

Conclusion

The use of robots in order to artificially change the price of an asset on the market is an illegal practice and should not be maintained by the investor or speculator in the financial market. In addition to being irregular, this practice is considered a crime of market manipulation.

Therefore, be very careful when making your transactions in the market. Always know the current rules and pay attention to the laws and regulations of the market.