Market Events

While not all such market events represent securities violations, the SEC and other federal agencies conduct surveillance of trends and dealer and investor positions to help determine whether market events are indicative of fraudulent activities. The SEC has brought enforcement actions against exchanges and related entities where the market event was caused or exacerbated by the exchange’s failure to follow relevant SEC or internal rules.

Technological changes including the automation of equity trading and the emergence of high frequency and algorithmic trading has significantly increased the threat of disruptions and other market events. Some threats identified by the Commission as possible violations include the misuse of confidential customer order information and failures to adopt policies and appropriate safeguards against the risks of direct market access, including the risk of out-of-control automation resulting from errors from changes in computer code. The SEC has also brought several cases involving high-volume manipulative trading schemes, including manipulation techniques known as “layering” or “spoofing.”  An example of this scheme is when a trader sends non-bona fide orders that he plans to cancel before they are executed in order to create false information about trading interest and prompt others to buy or sell securities at artificially high or low prices.