The Spoofing Resistance of Frequent Call Markets

We study the effects of spoofing attacks on frequent call markets (FCMs). Spoofing-a strategic manipulation to mislead market participants by creating spurious limit orders-could harm the market efficiency and has been declared illegal in many countries. However, this practice is still very common, which inspired extensive research on measuring, detecting and curbing such manipulation in the popular market model of continuous double auctions (CDAs). In this paper, we extend this research to frequent call markets and use agent-based modelling to simulate spoofing in this context. Specifically, we apply empirical game-theoretic analysis (EGTA) to compute equilibria of agent-based markets, and demonstrate that while spoofing may be profitable in both market models, it has less impact on FCMs as opposed to CDAs. Finally, we explore several FCM mechanism designs to help to curb this type of market manipulation even further.