Layering (finance)

Not to be confused with Layering in Money Laundering, for other uses see Layering (disambiguation).

Layering is a strategy in high-frequency trading where a brokerage firm makes and then cancels orders that they never intended to carry out. The trader initially places an order to sell above the market bid price. Subsequently, he places successively increasing bids for that same share. Once the initial requested bid price is reached and the owned shares are sold, the bids are all cancelled before being carried out. Therefore, the price falls back to its original equilibrium. This allows traders to sell above the market bid price in less than a second. It is considered a form of stock market manipulation.[1]

Instances

In 2011 British regulators fined Swift Trade £8 million for using the technique and the firm went out of business. The case drew a lot of attention as Swift Trade was a Canadian Firm and it was one of the first cases of the FSA (Financial Stability Authority) fining foreign firms.[1][2]

References

  1. ↑ 1.0 1.1 "Clamping Down on Rapid Trades in Stock Market". New York Times. October 8, 2011. Retrieved 2011-10-10. In August, regulators fined the firm, Swift Trade, £8 million, or $13.1 million, for a technique called layering, which involves issuing and then canceling orders they never meant to carry out. The action was challenged by Swift Trade, which was dissolved last year.
  2. ↑ Treanor, Jill (January 28, 2013). "Investment firm Swift Trade loses appeal over £8m fine for market abuse". The Guardian. Retrieved January 28, 2013.