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All of those charges relate to the flash crash, so not sure why you would omit it. Since most everything we do today involves computers and the internet, wire

All of those charges relate to the flash crash, so not sure why you would omit it. Since most everything we do today involves computers and the internet, wire fraud has become a catch-all charge that can be selectively enforced (see Aaron Swartz) to suit a prosecutor's needs. Despite the fact that many large players spoof on a regular basis, only this guy has been actually criminally charged. When a government anointed HFT firm does it, they only get a small slap on the wrist. Ironically, this guy pointed out to regulators how everyone is spoofing, and only after they did nothing to stop the spoofing did he say "well if everyone is doing it, I will too". The corrupt financial elite have found their scapegoat, and the message is clear: if you're a connected Wall Street firm, the laws do not apply to you, but if you're a regular guy day trading from home, the book will be thrown at you.

drakonandor 10y ago
Can you show evidence that spoofing is common?
- ConfuciusSay02 10y ago
  http://www.nanex.net/aqck2/4555.html http://www.nanex.net/aqck2/4555.html summarizes a study here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1955965 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1955965 Key quote: "This manipulative practice [spoofing] is illegal under the U.S. securities law, yet it has been frequently discovered in both equity and futures markets." Here's an example of the penalty a middling HFT firm sees: http://www.reuters.com/article/us-sec-enforcement-spoofing-idUSBREA331DD20140404?feedType=RSS&feedName=businessNews http://www.reuters.com/article/us-sec-enforcement-spoofing-i... $1.9M in fines - no jail. By contrast Sarao is facing up 380 years in prison. Others faced fines of only several hundred thousand dollars: http://www.wsj.com/articles/how-spoofing-traders-dupe-markets-1424662202 http://www.wsj.com/articles/how-spoofing-traders-dupe-market... Note that the most connected HFT firms (Virtu, Citadel - oh hey, Ben "Revolving Door" Bernanke works there) don't even get fines, despite engaging in spoofing, and even being banned from China for spoofing: https://www.ft.com/content/d4b61458-398d-11e5-8613-07d16aad2152 https://www.ft.com/content/d4b61458-398d-11e5-8613-07d16aad2... Also note that there have been many "flash crashes" triggered by spoofing HFT's. There's nothing special about the Sarao one, other than the fact that he was an individual operating out of his home.
  - evanpw 10y ago
    That paper uses simulated (i.e., fake) market data. The quote is just a bare assertion, not a conclusion. It's very difficult to identify spoofed orders in market data unless you're the exchange and know who sent all of the orders.
    - ConfuciusSay02 10y ago
      The paper uses "fake" data to develop a baseline for their model, which they then compare to real data to test its accuracy, which they claim is 90%. Furthermore, the study is based on the premise that there is lots of spoofing going on. That's because EVERYONE knows that spoofing is rampant. Everyone has acknowledged it, including the SEC and the Fed, so to dismiss the study by simply saying "it used fake data" with no other context is not a forthright appraisal of the situation.
      - evanpw 10y ago
        > the study is based on the premise that there is lots of spoofing going on That's fine, but you can't then claim the study as evidence of spoofing, since it was injected into the simulations explicitly. > which they then compare to real data to test its accuracy, which they claim is 90% The validation with real data was just comparing things like trade volume, volatility, autocorrelation, etc. They didn't put a specific number on it (the 90% accuracy mentioned in the abstract is about detecting HFT in simulated data). And they added in the spoofing after the validation. There definitely is spoofing going on (some of my job involves trying to detect it), but I'm deeply skeptical of anyone who claims they can detect it accurately or quantify the amount. 92% accuracy for detecting spoofers in simulated data is insanely high, and makes me doubt the applicability to the real world.
- hermitdev 10y ago
  I work for a dark pool alternative trading system as a regulatory analyst. We have to shut off subscribers all the time for spoofing. Some of the detection is automated, some is manual. We routinely get order inquiries from regulatory bodies sich as FINRA investigating as well. Yes, it is rampant still.

drakonandor 10y ago

Can you show evidence that spoofing is common?

ConfuciusSay02 10y ago
http://www.nanex.net/aqck2/4555.html http://www.nanex.net/aqck2/4555.html summarizes a study here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1955965 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1955965 Key quote: "This manipulative practice [spoofing] is illegal under the U.S. securities law, yet it has been frequently discovered in both equity and futures markets." Here's an example of the penalty a middling HFT firm sees: http://www.reuters.com/article/us-sec-enforcement-spoofing-idUSBREA331DD20140404?feedType=RSS&feedName=businessNews http://www.reuters.com/article/us-sec-enforcement-spoofing-i... $1.9M in fines - no jail. By contrast Sarao is facing up 380 years in prison. Others faced fines of only several hundred thousand dollars: http://www.wsj.com/articles/how-spoofing-traders-dupe-markets-1424662202 http://www.wsj.com/articles/how-spoofing-traders-dupe-market... Note that the most connected HFT firms (Virtu, Citadel - oh hey, Ben "Revolving Door" Bernanke works there) don't even get fines, despite engaging in spoofing, and even being banned from China for spoofing: https://www.ft.com/content/d4b61458-398d-11e5-8613-07d16aad2152 https://www.ft.com/content/d4b61458-398d-11e5-8613-07d16aad2... Also note that there have been many "flash crashes" triggered by spoofing HFT's. There's nothing special about the Sarao one, other than the fact that he was an individual operating out of his home.
- evanpw 10y ago
  That paper uses simulated (i.e., fake) market data. The quote is just a bare assertion, not a conclusion. It's very difficult to identify spoofed orders in market data unless you're the exchange and know who sent all of the orders.
  - ConfuciusSay02 10y ago
    The paper uses "fake" data to develop a baseline for their model, which they then compare to real data to test its accuracy, which they claim is 90%. Furthermore, the study is based on the premise that there is lots of spoofing going on. That's because EVERYONE knows that spoofing is rampant. Everyone has acknowledged it, including the SEC and the Fed, so to dismiss the study by simply saying "it used fake data" with no other context is not a forthright appraisal of the situation.
    - evanpw 10y ago
      > the study is based on the premise that there is lots of spoofing going on That's fine, but you can't then claim the study as evidence of spoofing, since it was injected into the simulations explicitly. > which they then compare to real data to test its accuracy, which they claim is 90% The validation with real data was just comparing things like trade volume, volatility, autocorrelation, etc. They didn't put a specific number on it (the 90% accuracy mentioned in the abstract is about detecting HFT in simulated data). And they added in the spoofing after the validation. There definitely is spoofing going on (some of my job involves trying to detect it), but I'm deeply skeptical of anyone who claims they can detect it accurately or quantify the amount. 92% accuracy for detecting spoofers in simulated data is insanely high, and makes me doubt the applicability to the real world.
hermitdev 10y ago
I work for a dark pool alternative trading system as a regulatory analyst. We have to shut off subscribers all the time for spoofing. Some of the detection is automated, some is manual. We routinely get order inquiries from regulatory bodies sich as FINRA investigating as well. Yes, it is rampant still.