The new provision could capture manipulative trading activity that "could potentially fall out of one of those two buckets", he said.
Currently, price manipulation cases require the agency to prove traders had the intent and ability to manipulate prices, tried to do so, and caused an "artificial price."
That four-part standard would continue to exist, but the CFTC included guidance that "artificial price" means a price affected by illegitimate market forces, the official said.
BANS ON SPOOFING, BANGING THE CLOSE
The Dodd-Frank law also requires the CFTC specifically to ban three disruptive trading practices as of July 16, 2011 -- a ban that does not require new regulations to take effect.
Included are "spoofing," in which traders make bids or offers but cancel them before execution, and "banging the close" -- acquiring a substantial position leading up to the close of trade, then offsetting the position in the final moments to manipulate the closing price.
The agency has no obligation on whether to go further, but wants to gather more comment during the next two months about whether it should close a potential loophole in the spoofing ban, or prohibit any other practices deemed disruptive.
It will ask for comments on whether to crack down on certain practices used by high-frequency traders -- such as "quote-stuffing" -- but it stopped short of immediately proposing new rules specifically aimed at algorithmic trading. High-frequency traders use lightening-fast algorithms to make markets and take advantage of tiny imbalances.
"Quote stuffing" refers to flooding the market with large numbers of rapid-fire orders and then canceling them almost immediately -- a practice that some have argued contributed to the May 6 stock market "flash crash."
(Editing by Leslie Adler)
Did you already "spoof" today ? No ?
I fear new legislation coming banning 'cancel orders'. Once your order is in, it will stay in. No 'spoofing'. And no more sell orders, while you're at it!
On a more serious note, how is 'spoofing' even a problem? Like that would seriously alter price equilibriums... And who takes EOD data seriously? Oh wait, it was OK until the locals manipulated closing prices. Now its manipulated off exchange, so it's a problem all of a sudden? Please, the idiots live next door.