FINRA has begun issuing cross-market report cards to member firms identifying spoofing and layering activities across different markets in an effort to halt manipulation and disruptive trading practices. Generally, spoofing is placing a bid or an offer with the intent to cancel the bid or offer prior to execution. Layering, which is a form of spoofing, is the placing of orders (typically in a series away from the best price) with the intent to cancel the orders prior to execution.
Relying upon cross-market data and sophisticated surveillance technology, FINRA identified potential spoofing or layering by member firms or entities to which the firms are providing market access. The report cards are the first of several steps planned by FINRA to address cross-market manipulation, and they are intended to be a preventive compliance measure to assist firms in addressing market manipulation internally prior to FINRA taking any formal action. FINRA has issued similar report cards in the past addressing trade reporting, best execution, audit trail reporting and NMS compliance.