Market Misconduct Case Files – 1. Mizuho Spoofing

According to documents published by the FCA and the Upper Tribunal, the traders used a Spoofing strategy coordinated across the desk in an attempt to induce other market participants to trade in a way that ensured favourable execution of their orders.

The strategy that was used:

• A large order would be placed a few ticks behind the current best bid/offer so that, while highly visible, it was unlikely to trade immediately.
• Around the same time, a small order would be placed on the opposite side of the book.
• The presence of the visible large order in the order book, was allegedly designed to prompt responses from other participants that would result in execution of the small order.
• Almost immediately after the execution of the small order, the large order would be cancelled.
• This pattern often involved coordination across the desk, where the three traders would separately place orders, but in a synchronised manner so as to achieve the above strategy.

It appears that it was not Mizuho who first spotted the suspicious trading patterns, but instead it was Eurex who noticed multiple large orders being placed in very close proximity on their venue and wrote to Mizuho shortly thereafter. While we have no definitive proof, it seems that Mizuho did not identify the broader pattern of abuse and that this was primarily because at that time they were not including orders in their trade surveillance, only executions, and that their trader oversight systems were fragmented.  In response to the letter received from Eurex, Mizuho conducted an internal investigation, eventually instructing its traders to cease the practice, and notified the FCA.

Six years later, in 2022, the FCA eventually issued Decision Notices to the three traders. While six years seems like an incredibly long time for the case to be concluded, there were various complexities impacting the case and it is worth outlining what was happening during that period:

• Between 2016 and 2019 the FCA conducted preliminary analysis, reviewing available internal trade surveillance data and alerts before opening a formal investigation.
• Once the investigation was opened, a complete data set containing full order book messages, timestamps and market depth was requested from Eurex, which took months to arrive.
• Over the next two years, the FCA identified and reviewed over 230 potential Spoofing incidents, for which they reconstructed the order book behaviour using the Eurex data and mapped it back to Mizuho’s records.
• The FCA had to disprove a number of explanations that the traders had given for their activity, bringing in external consultants to complete statistical and pattern analysis to show the Spoofing patterns.
• Also, in the process of concluding their case the COVID-19 pandemic hit, during which the FCA faced new priorities that temporarily shifted focus away from MAR enforcement.

Subsequently, the three traders referred the case to the Upper Tribunal to challenge the FCA’s findings. This process took another three years, hence the Upper Tribunal closed the case only the summer of 2025, concluding that the FCA was correct and that the Decision Notices are upheld.

A few things stand out about this case:

• This was a sustained period of Spoofing, as the traders performed over 230 incidents of misleading orders over a two-month period.  As with many other Spoofing cases, repetition is a key feature as traders learn to depend on manipulation for favourable order execution.
• The control environment within Mizuho did not do its job adequately and the primary culprit seems to have been the lack of surveillance of pre-trade activity / order data.  While there were regulations in place for abusive trading at that time, MAR had only just come into force, so Mizuho – like many others – were still in the process of upgrading their surveillance by implementing a new vendor trade surveillance solution.  Had this sequence of events happened in 2018 or later Mizuho would have been better equipped to identify the potential spoofing from early on.
• It is unclear why the FCA have not fined Mizuho for poor systems and controls due to their failure to identify the abuse, though again this may be related to the fact that MAR was only just coming into force when the activity occurred.
• While there is a level of complexity with this case, the overall timespan of 9 years to finally conclude the matter is excessive.   There has been significant ongoing investment by the FCA in its own market oversight and analytics capabilities, so we expect these kind of timeframes to be the exception to the rule, but this case does still illustrate a structural reality: that while regulated firms must act quickly to identify and report abuses, the FCA often faces complex international data challenges, legal thresholds, and fairness obligations that extend the timeline for bringing enforcement cases. Rather than a criticism, this highlights a gap between detection and resolution, and underscores the importance of robust surveillance and prompt reporting by firms, since they are the first line of defence in maintaining market integrity.
• Finally, the output of the Tribunal is an extensive analysis of the FCA’s case and the defence cases of the 3 traders, which are a conflicting mixture of claims relating to price discovery, anticipatory hedging and happenstance.  For those investigating potential market abuse it is a rich source of insight, to which we will return in a future instalment of our Market Misconduct Case Files.