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.....Surfing price momentum isn't the only technique some traders have used, according to regulators. Many engaged in deceptive tactics that caused other investors to pay more for stocks, or sell at lower prices, than they should have, regulators say.
The Swift story shows how globalized trading, in which firms buy and sell stocks from locations around the world, is stretching regulators' ability to police the markets. Mr. Beck said in an interview that an advantage of doing business in certain far-flung countries is that "there's no oversight" of the firm's traders.
Finra, the U.S. securities-industry's self-regulatory agency, long suspected Mr. Beck's firm of potentially manipulative activity but only recently was able to take action, in part by collaborating with regulators abroad, according to people familiar with the regulator.
.....Finra worked with Britain's Financial Services Authority, which in May 2011 imposed a fine of £8 million ($13 million) on Swift and a successor firm, one of its largest fines ever, "for engaging in market abuse." The firm is fighting the decision in U.K. courts.
The strategy both Finra and the FSA focused on is called layering. In an example of how it works, a trader might buy a small number of shares at $10 and place an order to sell them for $10.10 on an alternative trading venue, such as a dark pool. He also places a series of large orders to buy this same stock on an exchange for higher pricesâ$10.20, $10.30 and $10.40â"layering" on orders that create an impression of strong demand.
When this apparent demand prompts other market participants to raise their "buy" orders to $10.10, the trader's "sell" order is executed and he instantly cancels his large buy orders, pocketing a 10-cent-a-share profit.
The trader also may do the oppositeâplacing a small buy order at $9.90 and simultaneously several large sell orders at lower prices that will draw the market price downward, the direction the trader now wants it to go.
Swift "placed the large orders in order to give a false and misleading impression of supply and demand," a May 6, 2011, FSA decision notice said, adding that "manipulative trading was widespread and systematic" and was "directed and controlled" by Swift. An appendix described one instance of London trading in detail.
"It's like picking somebody's pocket over and over again," Thomas Gira, executive vice president of Finra, said in an interview.
Anyway, may be of interest to avoid "spoofing" and "layering" ...
Don
