26 July 2023
The enforcement arrangement approved by the Administrative Enforcement Committee deals with the practice of fraudulently persuading investors to buy or sell securities, while omitting material facts, through a pattern of trading activity on the stock exchange referred to as "spoofing". The violations were committed in the activity of the private accounts of an individual investor by the name of Roi Rostami, and by a trader that was employed by him. The case sets a precedent, in which for the first time, sanctions are imposed on fraudulent persuasion of this type.
Spoofing is a trading pattern, which is based on the submission of orders without the intention of executing them. The spoofer submits buy or sell order with limits higher or lower than the levels appearing in the order book, which have the ability to entice other players to react with their own orders in the direction of the spoof. Following the change in bid-ask price quotations in the order book, the spoofer executes a transaction in the other direction against the orders placed by others at a more advantageous price, while cancelling his original orders. The submission of buy orders amidst rising prices creates a misrepresentation of demand which motivates additional potential buyers to offer bids at higher prices to attain priority in the order book and to buy before prices rise even higher. The same is true with sell orders. In effect, the spoofer creates a misrepresentation of demand or supply and in this manner, persuades other traders to change the limits on the orders they submit, while hiding from them the facts that the orders submitted by him were never meant to be executed and were slated to be cancelled, and that at the end of move, the spoofer executed transactions in the opposite direction.
Roi Rostami was fined NIS 300,000 and a provisional fine of the same amount. In addition, within the framework of measures to prevent repeat violations, Rostami has been barred from discretionary securities trading on the stock exchange for a period of five months. Should he violate this commitment, he will be charged NIS 100,000.
The other violator, who was employed by Rostami, was fined NIS 100,000 in light of unusual personal circumstances, and a provisional fine of the same amount, has been barred from discretionary securities trading on the stock exchange for a period of 12 months. Should he violate this commitment, he will be charged NIS 100,000. In addition, his investment portfolio management license was suspended (which is currently voluntarily suspended) for a period of 12 months.
The Israel Securities Authority's Investigations, Intelligence and Market Surveillance Department conducted the investigation into the case. Adv. Tal Amir from the Administrative Enforcement Department represented the Securities Authority in this proceeding.
Summary of the Facts
Both respondents are highly active and experienced securities traders who, during the relevant period, engaged in proprietary day-trading. Rostami is the owner of several proprietary (nostro) accounts in which he trades. The other violator worked for Rostami under salary during the relevant period and was responsible for executing the trades in Rostami's account. In addition to his base salary, he was entitled to part of the profits generated in the account, which exceeded his base salary. The rest of profits remained with Rostami, the account owner.
The violation of unlawful persuasion in this case was manifested in the violators' trading behavior and found expression in the trading data.