Detection and analysis of occurrences of spoofing in the Brazilian capital market

Luisa Mendonça and Alan De Genaro

Journal of Financial Regulation and Compliance, 2020, vol. 28, issue 3, 369-408

Abstract: Purpose - The purpose of this paper is to analyze a data set from a brokerage firm to find possible spoofing cases in ten stocks from the Ibovespa index. The studies proposed concerned the parameters used in the search for the practice, the frequency of occurrences during the negotiation period, the impact on the price caused by the size of the spoofing order and the correlation between the stock's liquidity and the number of occurrences. Design/methodology/approach - By using intraday orders flows, the authors are able to reassemble the order book and perform an analysis of potential market manipulation. Findings - The authors found six possible cases, all of them happened in the beginning or end of the negotiation period, confirming that there is a window of opportunity for the practice when there is greater uncertainty related to the stock's price. Moreover, they found that in the less liquid stocks, it was necessary to place greater spoofing orders aiming to narrow the wider spread. Practical implications - A methodology for spoofing detection that can be replicated by brokerage firms and other researchers was developed. Social implications - The study contributes to the literature of capital market regulation by suggesting best practices for regulators and self-regulatory entities to avoid a predatory market practice. Originality/value - The authors present an algorithm and parameters for detecting spoofing; other papers are not practical orientated.

Keywords: Surveillance; Spoofing; Market manipulation; G14; G28; C55 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-07-2019-0092

DOI: 10.1108/JFRC-07-2019-0092

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