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Why write rules based on intent? Seems like it'd be far better to write rules specifying limits on ordering. So if you cancel more than X% of orders, a set susp

Why write rules based on intent? Seems like it'd be far better to write rules specifying limits on ordering. So if you cancel more than X% of orders, a set suspension or fine gets issued. Write rapidly increasing suspensions or fines. Or is it that there's just too much legitimate orders meeting this criteria? If so are there no other material criteria to discriminate on? Edit: It seems there are already limits in place both for absolute frequency as well as trade/order ratios.

ikeboy 11y ago
See http://www.bloombergview.com/articles/2015-10-08/why-do-high-frequency-traders-cancel-so-many-orders- http://www.bloombergview.com/articles/2015-10-08/why-do-high...
- MichaelGG 11y ago
  Yeah and the ratios are already limited by exchanges and the SEC tracks it nicely: http://www.sec.gov/marketstructure/datavis/ma_exchange_canceltotrade.html http://www.sec.gov/marketstructure/datavis/ma_exchange_cance... Some exchanges have a far higher ratio. Instead of ~10 (90%) it's ~150 (99.3%). But there's probably a good reason for this.
tptacek 11y ago
Order cancellation is how electronic market makers change their prices, so you can't simply target cancellation.
- MichaelGG 11y ago
  Sure but is there nothing else to target? Different patterns in cancelled orders? If not, is it really causing harm, if there's no actual difference in these orders? Intent seems such an inelegant thing to attempt to limit. After all, the orders are real orders - they stand just as much chance to execute, right? (If not, then what feature makes them less real? The rapidity in which they are cancelled?) Edit: There's probably a good reason they are regulated this way. Most things probably make sense at some level in trading, as there's too many smart people with money for it to be otherwise, right? (Though I still don't get why anyone would ever use a market order.)
  - kasey_junk 11y ago
    The thing that makes them different is that they all get cancelled together, and the actor doing it is doing it in order to manipulate other actors in the market. Lots of laws hinge on intent. Whether spoofing should be against the law I don't have much of an opinion on, but determining demand is a central component to price discovery, which is something we very much want the markets to be able to do appropriately, so if we allow blatant spoofing we need some other mechanism to account for that. I'd think that de-anonymizing the orders would go a long way to making the spoofing problem go away. But that would be just one other way for large interests to have an advantage over smaller ones, as they would be the only ones able to account for "reputation" when determining their pricing.

ikeboy 11y ago

See http://www.bloombergview.com/articles/2015-10-08/why-do-high-frequency-traders-cancel-so-many-orders- http://www.bloombergview.com/articles/2015-10-08/why-do-high...

MichaelGG 11y ago
Yeah and the ratios are already limited by exchanges and the SEC tracks it nicely: http://www.sec.gov/marketstructure/datavis/ma_exchange_canceltotrade.html http://www.sec.gov/marketstructure/datavis/ma_exchange_cance... Some exchanges have a far higher ratio. Instead of ~10 (90%) it's ~150 (99.3%). But there's probably a good reason for this.

tptacek 11y ago

Order cancellation is how electronic market makers change their prices, so you can't simply target cancellation.

MichaelGG 11y ago
Sure but is there nothing else to target? Different patterns in cancelled orders? If not, is it really causing harm, if there's no actual difference in these orders? Intent seems such an inelegant thing to attempt to limit. After all, the orders are real orders - they stand just as much chance to execute, right? (If not, then what feature makes them less real? The rapidity in which they are cancelled?) Edit: There's probably a good reason they are regulated this way. Most things probably make sense at some level in trading, as there's too many smart people with money for it to be otherwise, right? (Though I still don't get why anyone would ever use a market order.)
- kasey_junk 11y ago
  The thing that makes them different is that they all get cancelled together, and the actor doing it is doing it in order to manipulate other actors in the market. Lots of laws hinge on intent. Whether spoofing should be against the law I don't have much of an opinion on, but determining demand is a central component to price discovery, which is something we very much want the markets to be able to do appropriately, so if we allow blatant spoofing we need some other mechanism to account for that. I'd think that de-anonymizing the orders would go a long way to making the spoofing problem go away. But that would be just one other way for large interests to have an advantage over smaller ones, as they would be the only ones able to account for "reputation" when determining their pricing.