The stock market is rife with manipulative practices, and spoofing is one of the most prevalent among them. Manipulators invest heavily in understanding the finer points of regulatory frameworks, actively searching for loopholes. Once found, they exploit these gaps through sophisticated programming techniques and legal workarounds. Patel Wealth Advisors Pvt. Ltd. is one such case—taking advantage of flaws in the exchange’s Bid-Ask mechanism to engage in spoofing and earn illicit gains. While the exchange was aware of the activities, it lacked the tools to prevent them. In this write-up, we will explain the spoofing technique, its impact on stock prices, and examine SEBI’s (Securities and Exchange Board of India) efforts to curb it through software solutions.
What Is Spoofing in the Stock Market?
Stock prices are fundamentally driven by supply and demand. When buyers outnumber sellers, prices tend to rise, and when sellers outnumber buyers, prices usually fall. The bid-ask screen in a trading terminal displays this dynamic by showing the total number of buy and sell orders. Spoofing distorts this information to manipulate trading sentiment.
For instance, imagine a stock where there are currently 50,000 buy orders and 70,000 sell orders. Suddenly, the buy orders jump to 90,000 and sell orders drop to 50,000. This change can create a false impression of strong buying interest, driving prices upward. Spoofing involves placing large, non-genuine orders to create such illusions without any intention of executing them. Once the desired price movement is achieved, the manipulator cancels the fake orders and exits their position for a profit.
How Spoofing Works
Let’s break it down with an example:
- A stock is trading at ₹100 (Last Traded Price).
- On the buy side, 1,000 bids are present, with the lowest at ₹95.
- On the sell side, 1,100 stocks are offered, with the lowest ask at ₹99.90.
- Suddenly, a buy order for 5,000 shares is placed at ₹92.
This order inflates the buy-side volume, misleading market participants into thinking demand is rising. In response, traders may push the price up. Meanwhile, the manipulator sells their own shares at the inflated price. After profiting, they cancel the fake ₹92 buy order. The same tactic can be applied to the sell side, and it works across all market segments—cash and derivatives alike.
According to a SEBI order, Patel Wealth Advisors allegedly used spoofing in 173 stocks and earned about ₹3.22 crore. But the figure raises questions—would anyone risk such a scheme for a mere ₹3.22 crore? It’s widely believed that the real profits, especially from grey market activities using cash and 20x margin, could be significantly higher.
Is Spoofing Difficult to Execute?
Not at all. In fact, spoofing is alarmingly widespread. Many brokers employ this technique to manipulate the prices of stocks associated with their promoter clients. If a broker restricts your order size to the funds in your account, placing large, fake orders becomes impossible. But brokers often use client margins intraday, allowing them to place huge blank orders.
Spoofing is a foundational tactic in stock manipulation. Even the common trading features like “disclosed quantity” and “undisclosed quantity” can be exploited for this purpose.
Is Spoofing Detectable?
Yes, spoofing is not hard to detect. Market data vendors like Geek Soft offer tools that show complete market depth, allowing traders to identify spoof orders designed to distort supply-demand dynamics. Numerous software solutions exist that detect spoofing in real time and alert traders accordingly. In fact, savvy traders can even benefit from spoofing by tracking patterns orchestrated by players like Patel Wealth Advisors.
Consider the notorious tactic: “Profit from stocks in the F&O ban list.” Some traders intentionally push a stock into the ban list and profit off the volatility it creates.
What About SEBI’s Anti-Spoofing Measures?
This is the critical question. Spoofing is deeply entrenched in the market. SEBI might catch a few violators, but widespread detection remains a challenge. What we need is a proactive, automated system that can detect and disable spoofer terminals in real time. Only then can regulators level the playing field for genuine investors.
Conclusion
Spoofing undermines market integrity and investor trust. While regulators like SEBI are making strides, more robust, real-time intervention tools are essential. The problem isn’t identifying spoofers—it’s acting against them quickly and effectively.
