In recent years, there has been a surge in the number of cases filed by the Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) on alleged spoofing-related activity. In these allegations, authorities claimed manipulation of the markets through single large orders or layered orders. In prior pieces, we provided a primer on these allegations and a discussion on execution probability of layered orders. In this piece, we focus on single large orders and discuss their frequency and execution probability.
We analyze a sample of futures market activity in the platinum, gold, and Treasury futures from 2009 to 2018, and identify large orders in each market using the CME order book data. Using the data, we analyze whether the incidence of large orders has changed over the years 2009 to 2018. Next, we analyze whether large orders are more often placed at inside price levels or at the outside price levels to study the risk of execution of those orders.
In our sample, we find that:
- the incidence of large orders has generally been consistent across years, in spite of the increased regulation and more active enforcement.
- in deep markets, large orders tend to be placed at the best bid or offer price in the market, and in shallower markets, they are more often placed at price levels further from the best bid or offer.