5 ms·

Correct me if I'm wrong, but I thought this was a tactic employed by HFTs? Don't they regular place market orders and immediately cancel them to manipulate the

Correct me if I'm wrong, but I thought this was a tactic employed by HFTs? Don't they regular place market orders and immediately cancel them to manipulate the market and slow down other HFTs? How is this illegal?

sokoloff 10y ago
Placing a market order you're going to get filled before you can cancel if there's any book on the other side at all.
wmil 10y ago
He did it without belonging to the one of the correct fraternities.
smcl 10y ago
I'm not sure how widespread it is, but Nanex have a breakdown of a single case where Citadel were using this strategy: http://www.nanex.net/aqck2/4670.html http://www.nanex.net/aqck2/4670.html
- evanpw 10y ago
  Very bizarre reasoning: a misconfiguration can cause the strategy to do X => the strategy was designed to do X. Seems more like evidence for "quote stuffing is a bug": https://www.chrisstucchio.com/blog/2014/quote_stuffing_is_a_software_bug.html https://www.chrisstucchio.com/blog/2014/quote_stuffing_is_a_...
  - smcl 10y ago
    That article is extremely bizarre. Nanex make a pretty clear argument that Citadel fired out a set of orders it didn't intend to get filled to introduce a delay between SIP and Nasdaq and intended to take advantage of the delay. The Chris Stucchio article opens with a cute take on the South Park underpants gnomes list ("2. ???") and suggests that nobody has outlined why this strategy would be profitable ... which is weird because this is exactly what Nanex did: "What is the benefit of a feed delay? For one, latency arbitrage is enhanced, especially if the delay is predictable, which it would be for someone running a Quote Stuffing trading strategy. The type of firm that would benefit the most from latency arbitrage would be an internalizer - someone that matched retail stock trades based on the slower SIP, but could buy and sell the same stocks on the faster direct feed, a strategy that became visible during the Nasdaq Blackout. By the way, Citadel's bread and butter is internalizing (matching) retail stock trades" This is extremely easy to understand. Reading on there are a number of xkcd-style graphs that basically say "testing is hard!" but still don't really provide a solid rebuttal. I stopped reading at that point, I'm afraid :( I'm far from an expert on this, and my opinion really doesn't matter - but I'm far more persuaded by the Nanex explanation.
- hermitdev 10y ago
  I'm sceptical of this analysis because they claim they probably meant milliseconds instead of microseconds. It is certainly quite easily possible to send trades microseconds apart, especially if you're colocated (and probably not under a vm, bit probably still possible on a vm if the physical host isnt too taxed).
jawilson2 10y ago
No, it is very illegal. You can only enter orders you intend to have filled.
- jonknee 10y ago
  There is no "very illegal" and it was just made illegal in 2010. It's a hard thing to prove and spoofing is still rampant.
- ant512 10y ago
  Why is it possible to cancel an order?
  - reverend_gonzo 10y ago
    So, you can only place an order that, at the time of order entry, you intend to get filled. However, as the market changes, your intentions may change, and that is completely fair. So, while you may initially want to get filled, if you see the market moving against you, you may decide you want a better price, and then move it or cancel it. So, it's all about initial intent, which is extremely difficult to prove. And that's why most traders who are well known to spoof markets haven't been prosecuted (see 3Red's Igor Oystacher), because they are smart enough to hide their intentions. Sarao, on the other hand, wrote emails where he stated exactly what he was doing. For example, in the indictment, they have emails where he wrote that wants an order type that will never get filled, and if it looks like he is close to getting filled, to immediately cancel. Without those emails, he would've been able to at least make up some defense. When he has stated in writing that he is placing orders that he does not want to get filled, well, that's a very prosecution.
fixxer 10y ago
The problem is when it _isn't_ a spoof. Source: I got run over a couple times in the Treasury market.
Lazare 10y ago
Cancelling orders quickly is legal. Changing your mind quickly is legal. Placing an order with no intent to trade is illegal. HFTs do the first two, but not the third, and it's the third which is the definition of spoofing.
- gozur88 10y ago
  It's one of those laws that requires some proof of intent. It's hard to imagine they'd be able to prosecute if he hadn't been stupid enough to lay out his (illegal) intentions in email. By the same token there are probably a bunch of other traders doing the same thing who are smart enough to keep mum.

sokoloff 10y ago

Placing a market order you're going to get filled before you can cancel if there's any book on the other side at all.

wmil 10y ago

He did it without belonging to the one of the correct fraternities.

smcl 10y ago

I'm not sure how widespread it is, but Nanex have a breakdown of a single case where Citadel were using this strategy: http://www.nanex.net/aqck2/4670.html http://www.nanex.net/aqck2/4670.html

evanpw 10y ago
Very bizarre reasoning: a misconfiguration can cause the strategy to do X => the strategy was designed to do X. Seems more like evidence for "quote stuffing is a bug": https://www.chrisstucchio.com/blog/2014/quote_stuffing_is_a_software_bug.html https://www.chrisstucchio.com/blog/2014/quote_stuffing_is_a_...
- smcl 10y ago
  That article is extremely bizarre. Nanex make a pretty clear argument that Citadel fired out a set of orders it didn't intend to get filled to introduce a delay between SIP and Nasdaq and intended to take advantage of the delay. The Chris Stucchio article opens with a cute take on the South Park underpants gnomes list ("2. ???") and suggests that nobody has outlined why this strategy would be profitable ... which is weird because this is exactly what Nanex did: "What is the benefit of a feed delay? For one, latency arbitrage is enhanced, especially if the delay is predictable, which it would be for someone running a Quote Stuffing trading strategy. The type of firm that would benefit the most from latency arbitrage would be an internalizer - someone that matched retail stock trades based on the slower SIP, but could buy and sell the same stocks on the faster direct feed, a strategy that became visible during the Nasdaq Blackout. By the way, Citadel's bread and butter is internalizing (matching) retail stock trades" This is extremely easy to understand. Reading on there are a number of xkcd-style graphs that basically say "testing is hard!" but still don't really provide a solid rebuttal. I stopped reading at that point, I'm afraid :( I'm far from an expert on this, and my opinion really doesn't matter - but I'm far more persuaded by the Nanex explanation.
hermitdev 10y ago
I'm sceptical of this analysis because they claim they probably meant milliseconds instead of microseconds. It is certainly quite easily possible to send trades microseconds apart, especially if you're colocated (and probably not under a vm, bit probably still possible on a vm if the physical host isnt too taxed).

jawilson2 10y ago

No, it is very illegal. You can only enter orders you intend to have filled.

jonknee 10y ago
There is no "very illegal" and it was just made illegal in 2010. It's a hard thing to prove and spoofing is still rampant.
ant512 10y ago
Why is it possible to cancel an order?
- reverend_gonzo 10y ago
  So, you can only place an order that, at the time of order entry, you intend to get filled. However, as the market changes, your intentions may change, and that is completely fair. So, while you may initially want to get filled, if you see the market moving against you, you may decide you want a better price, and then move it or cancel it. So, it's all about initial intent, which is extremely difficult to prove. And that's why most traders who are well known to spoof markets haven't been prosecuted (see 3Red's Igor Oystacher), because they are smart enough to hide their intentions. Sarao, on the other hand, wrote emails where he stated exactly what he was doing. For example, in the indictment, they have emails where he wrote that wants an order type that will never get filled, and if it looks like he is close to getting filled, to immediately cancel. Without those emails, he would've been able to at least make up some defense. When he has stated in writing that he is placing orders that he does not want to get filled, well, that's a very prosecution.

fixxer 10y ago

The problem is when it _isn't_ a spoof. Source: I got run over a couple times in the Treasury market.

Lazare 10y ago

Cancelling orders quickly is legal. Changing your mind quickly is legal. Placing an order with no intent to trade is illegal. HFTs do the first two, but not the third, and it's the third which is the definition of spoofing.

gozur88 10y ago
It's one of those laws that requires some proof of intent. It's hard to imagine they'd be able to prosecute if he hadn't been stupid enough to lay out his (illegal) intentions in email. By the same token there are probably a bunch of other traders doing the same thing who are smart enough to keep mum.