Week InReview: October 5, 2018

Crypto bots.

Is spoofing illegal? Well, sure, yes. There is a law against spoofing in U.S. commodity markets. In U.S. equities markets, where there is no explicit law against spoofing, it is still punished as a variety of fraud. Submitting orders to buy a stock, without intending to buy that stock, in order to push up the price so you can sell it: It sounds dishonest, and there's no particular problem with calling it fraust

But outside of electronic securities and commodities markets, things are a little murkier. A bond investor who gives a dealer the impression he might want to buy some bonds, asks for a two-sided market, and then sells the bonds to the dealer might just be a savvy trader, not a fraudster. Big activist shareholders of public companies sometimes offer to buy those companies, not because they really want to, but to put the companies in play so they can sell to a higher bidder. More broadly, creating an impression of demand for a product so that you can sell more of it is just fine in many businesses. Fashion brands pay influencers to wear their products so they can sell more of them. A mayo company bought some of its own mayo so that stores would order more of it; this was controversial but not obviously illegal.

There is I think no general rule to the effect of "you can't create the impression of demand for something in order to sell more of it." Sometimes you can, and sometimes you can't.

Matt Levine's Money Stuff: Crypto Bots Manipulate Proudly

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