Spoofing is a type of misconduct where

Question

BlackTom AI · Accepted Answer

To understand the concept being tested, let's examine what spoofing typically entails in trading abuses and how each option aligns or misaligns with that definition.
Option a: 'A person uses information other people do not have to trade ahead of their orders.' This describes asymmetrical information advantage, which is related to predatory or front-running behavior, but it is not spoofing by itself. Spoofing involves placing orders with no intent to execute them to manipulate the market, not simply trading ahead on information.
Option b: 'A person entices others to trade by placing a large order on the same side of the order book before placing the target order.' This sounds like a form of liquidity provision or signal, but spoofing requires the large order to be placed on the opposite side of the intended trade to mislead others. Placing a large order on the same side does not fit the classic spoofing pattern and could instead resemble a momentum- or signal-generating strategy, which is not spoofing.
Option c: 'A person entices others to trade by placing a large order on the other side of the order book before placing the target order.' Here, the key element is placing an oversized order on the opposite side to create a false impression of supply or demand, luring others to trade, while the spoofer cancels or promptly quotes away the large order. This matches the standard spoofing definition: falsified interest on the opposite side to induce trades, without the intent to execute the large order.
Option d: 'A person accumulates a very large position in an asset, forcing others to take the same position.' This describes position accumulation or cornering dynamics, or perhaps a forced-position tactic, but it does not capture the deceptive order-placement behavior central to spoofing. It focuses on the end state (large position) rather than the deceptive publication of large orders to mislead.

In summary, option a touches on information-based advantages but misses the deceptive order-placement aspect; option b misplaces the large order on the same side and thus does not reflect spoofing as defined; option d describes manipulation through positioning rather than deceptive order actions; option c uniquely describes placing a large order on the opposite side to lure others into trading, which aligns with spoofing as commonly defined in market misconduct literature.

MFIN6205-Fin Risk Mgmt for Fins Inst T1 2025

Spoofing is a type of misconduct where

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