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Ahem, buried in the middle of the article (I wonder why) "Navinder Sarao is accused of spoofing in the S&P 500 futures market, entering and cancelling lots of

Ahem, buried in the middle of the article (I wonder why) "Navinder Sarao is accused of spoofing in the S&P 500 futures market, entering and cancelling lots of orders to create an illusion of demand, in suspicious proximity to the flash crash of 2010." This happens a lot more than you might think. There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatility). This is the #1 reason why canceled ordered from HFT are suspect. It's too easy to stuff the order book and cheat a little. You really need highly credible market makers who have proven not to do this sort of thing. Even then, such folks are very rare and hard to appreciate. Your algorithms get so complex and obfuscated it's hard to tell what's stuffing the order book and what's simple market making. The fact is, everyone is stuffing the order book. Sarao is more a patsy than anything else. His biggest crime wasn't belonging to a Goldman Sachs paying bribes to political entities.

tptacek 11y ago
There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatility). Is this something you have personal experience in? I ask because a lot of people relate this concern because they read about it in Zero Hedge, which is regarded by people in the industry as (as someone here once put it) "a conspiracy theory site without the theories".
- beagle3 11y ago
  The description of ZeroHedge is funny and not entirely untrue, but if you regard them as an aggregator of opinions, (which they mostly are, even though they do offer their own opinions), it is unmatched in its breadth of coverage, despite having a rather low signal coverage. WRT suffing the order book - at least as far back as 2003, in Eurex, there was a swiss trader who would do that in bond futures. There were a lot of comlpaints, and even death threats IIRC, but a Eurex investigation at the time found he did nothing wrong - their main finding was that he would occasionally get those "stuffing" orders executed, which means that (as far as they are concerned) they are not false or misleading in any way. That's probably the gist of it: as long as you are willing to take the hit if your bluff goes against you, there's nothing "fake" about it. It's been years since, and I know not of any (officially investigated) cases back then, or of any recent cases - but I'd be surprised if it's not very prevalent. (Also, I've been out of the HFT world for a while).
- blazespin 11y ago
  It takes about five minutes on any broker that shows the full book to see orders vanish outside the market as it moves. Obviously you haven't bothered to do that before commenting. If those orders were real and not just fake demand they won't vanish so consistently. Here's a good article for you to read: http://www.bloombergview.com/articles/2014-10-02/prosecutors-catch-a-spoofing-panther http://www.bloombergview.com/articles/2014-10-02/prosecutors... There's a reason why they made spoofing illegal. The problem is, that you can't tell the difference between spoofing and just market making, especially as the algos get particularly complex. And when you start looking at in aggregate you see the real problem.

tptacek 11y ago

There is always a temptation to stuff the order book to keep it going in a direction profitable for you (ie, fake volatility). Is this something you have personal experience in? I ask because a lot of people relate this concern because they read about it in Zero Hedge, which is regarded by people in the industry as (as someone here once put it) "a conspiracy theory site without the theories".

beagle3 11y ago
The description of ZeroHedge is funny and not entirely untrue, but if you regard them as an aggregator of opinions, (which they mostly are, even though they do offer their own opinions), it is unmatched in its breadth of coverage, despite having a rather low signal coverage. WRT suffing the order book - at least as far back as 2003, in Eurex, there was a swiss trader who would do that in bond futures. There were a lot of comlpaints, and even death threats IIRC, but a Eurex investigation at the time found he did nothing wrong - their main finding was that he would occasionally get those "stuffing" orders executed, which means that (as far as they are concerned) they are not false or misleading in any way. That's probably the gist of it: as long as you are willing to take the hit if your bluff goes against you, there's nothing "fake" about it. It's been years since, and I know not of any (officially investigated) cases back then, or of any recent cases - but I'd be surprised if it's not very prevalent. (Also, I've been out of the HFT world for a while).
blazespin 11y ago
It takes about five minutes on any broker that shows the full book to see orders vanish outside the market as it moves. Obviously you haven't bothered to do that before commenting. If those orders were real and not just fake demand they won't vanish so consistently. Here's a good article for you to read: http://www.bloombergview.com/articles/2014-10-02/prosecutors-catch-a-spoofing-panther http://www.bloombergview.com/articles/2014-10-02/prosecutors... There's a reason why they made spoofing illegal. The problem is, that you can't tell the difference between spoofing and just market making, especially as the algos get particularly complex. And when you start looking at in aggregate you see the real problem.