High-frequency trading, spoofing and conflicting epistemic regimes: Accounting for market abuse in the age of algorithms

Abstract

In recent years, the use of high-speed algorithms has created new challenges for the integrity and stability of financial markets. One particular abusive behaviour, known as ‘spoofing’, has become a significant concern for regulators and market participants. Drawing on ethnographic materials, we examine the strategies behind manipulative trading practices from the perspective of market operators using algorithms. We show how spoofing is carried out in practice and discuss how the traders involved justify their actions. Our study makes two key contributions. First, we argue that the ‘algorithmic war’ often used to describe contemporary financial markets can be better understood as a conflict between different epistemic regimes. Second, we emphasize the need for regulators to better recognize the role of socio-technical systems in developing market abuse regulations.