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As a trader, that does look really bad. These people know that the market looks at the orders to guess the state of supply and demand. The penalty looks big but

As a trader, that does look really bad. These people know that the market looks at the orders to guess the state of supply and demand. The penalty looks big but it's over an 8 year period. It's not exactly a secret that some market participants work out some kind of imbalance measure, and of you've ever implemented a system like that, like I've done, it will have crossed your mind that you could shove a load of orders in that mask the imbalance for everyone else. But you have heard of the spoofing rules and you don't do it. If we want a functioning market without a reputation for sharks, there's some rules to be followed. Iirc they got a guy thrown in jail for this? Sarao or something like that? He had someone build him a spoofing machine and made a lot of money, though it's not clear to me how much was from doing this specifically. In case you're wondering about that intention to cancel phrase, of course there are participants like market makers who do cancel a lot of orders. In that case it's a matter of them following the market in providing liquidity, they are not doing it to fool everyone.

andylynch 5y ago
Yes - you're thinking of Navinder Sarao, the so-called 'Hound of Hounslow', held at least partly responsible for the 2010 flash crash.
smabie 5y ago
In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants would adapt and the world would move on.
- arcticbull 5y ago
  > In crypto spoofing is pretty prevalent. It's completely legal. If big financial institutions would risk fines and prosecution to do this is a market where it's illegal, what on earth makes people think it wouldn't happen in markets where it's legal? > There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. I assume you're alluding to Cumberland/DRW?
- olalonde 5y ago
  There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
  - fnordfnordfnord 5y ago
    >Make orders non-cancellable for a certain period of time, Exactly, in a similar manner that the PDT 4 trades in 5 days rule is implemented.
  - murbard2 5y ago
    One solution which should be on the table is to not prevent it, at which point people stop looking at order book imbalance or volume as a signal. The fundamental question is what is lost if there's no signal in order book data. Does it hurt price formation? Does it hurt liquidity? All of these are empirical questions. You also have to compare it not to the scenario where everyone abides by anti spoofing rules, but one in which compliance is imperfect (as evidenced by this article). There are defenses against market manipulation, but they can run afoul of the very rules against it, which leaves law abiding actors vulnerable. It's not clear at all that the current equilibrium is the right one, but sadly the discourse is rarely around the rules most conducive to liquidity, it generally starts with the premise that any kind of strategic order placement is inherently deceptive and wrong.
  - anonymoushn 5y ago
    If I can't cancel I must quote wider, just like how if I can't be sure the exchange will even be up during volatility then I can't go 3x long futures at one venue and 3x short at another.
deleted 5y ago
[deleted]
lostinquebec 5y ago
I often wonder: wouldn't fines paid as a percentage of stock be a better deterrent? Taking stock off shareholders changes the fraud equation from risk of fine vs the profitability upside, to shareholder's losing real value. That's the role of shareholders AFAICT, to hold their board and the company accountable. Fail to do so and lose your shareholding seems the right direct risk. The fines could also be a lot larger, because there is minimal risk of bankrupting a business from diluting existing shareholders. A 1% shareholder hit would be $4B at current market cap. Make it 5% and really make shareholders pay.
- zitterbewegung 5y ago
  This would encourage the behavior because if there is less stock of the company held by anyone it increases the price . Shareholders can change corporate behavior lik Carl Icahn but here it seems like it was very opaque to even monitor, the other way they can enforce good behavior is to sell the stock.
- lottin 5y ago
  Shareholders can't be asked to police the company. That's not their job. They don't have the resources nor the expertise to do it.
  - carnitine 5y ago
    All you need is a few activist hedge funds to do the policing. You can’t blanket say that shareholders lack resources.
  - selfhoster11 5y ago
    So they can push for ever greater profits, but not bear any responsibility?
  - netcan 5y ago
    No, but if fines are the mechanism for punishment/restitution, they may as well be marked to market cap.
  - dtech 5y ago
fnordfnordfnord 5y ago
>https://www.bbc.com/news/explainers-51265169 https://www.bbc.com/news/explainers-51265169 >Michael Coscia in 2013. >Coscia was sentenced to three years in prison for spoofing futures markets using a specially designed computer program, making an estimated $1.6m (£1.2m).

andylynch 5y ago

Yes - you're thinking of Navinder Sarao, the so-called 'Hound of Hounslow', held at least partly responsible for the 2010 flash crash.

smabie 5y ago

In crypto spoofing is pretty prevalent. There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. It's annoying to see, but not a big deal per se: your order book imbalance features just get weighted less heavily and you move on. ofc spoofing is illegal in tradfi, but if it wasn't, I kind of doubt it would even matter: market participants would adapt and the world would move on.

arcticbull 5y ago
> In crypto spoofing is pretty prevalent. It's completely legal. If big financial institutions would risk fines and prosecution to do this is a market where it's illegal, what on earth makes people think it wouldn't happen in markets where it's legal? > There are even tier 1 tradfi market makers who heavily engaged in not just spoofing but quote stuffing as well across crypto markets. I assume you're alluding to Cumberland/DRW?
olalonde 5y ago
There are also trivial technical solutions to this. Make orders non-cancellable for a certain period of time, throttle cancellation rate, etc. Any crypto exchange could implement this and win market share if it is really a feature that traders want.
- fnordfnordfnord 5y ago
  >Make orders non-cancellable for a certain period of time, Exactly, in a similar manner that the PDT 4 trades in 5 days rule is implemented.
- murbard2 5y ago
  One solution which should be on the table is to not prevent it, at which point people stop looking at order book imbalance or volume as a signal. The fundamental question is what is lost if there's no signal in order book data. Does it hurt price formation? Does it hurt liquidity? All of these are empirical questions. You also have to compare it not to the scenario where everyone abides by anti spoofing rules, but one in which compliance is imperfect (as evidenced by this article). There are defenses against market manipulation, but they can run afoul of the very rules against it, which leaves law abiding actors vulnerable. It's not clear at all that the current equilibrium is the right one, but sadly the discourse is rarely around the rules most conducive to liquidity, it generally starts with the premise that any kind of strategic order placement is inherently deceptive and wrong.
- anonymoushn 5y ago
  If I can't cancel I must quote wider, just like how if I can't be sure the exchange will even be up during volatility then I can't go 3x long futures at one venue and 3x short at another.

deleted 5y ago

[deleted]

lostinquebec 5y ago

I often wonder: wouldn't fines paid as a percentage of stock be a better deterrent? Taking stock off shareholders changes the fraud equation from risk of fine vs the profitability upside, to shareholder's losing real value. That's the role of shareholders AFAICT, to hold their board and the company accountable. Fail to do so and lose your shareholding seems the right direct risk. The fines could also be a lot larger, because there is minimal risk of bankrupting a business from diluting existing shareholders. A 1% shareholder hit would be $4B at current market cap. Make it 5% and really make shareholders pay.

zitterbewegung 5y ago
This would encourage the behavior because if there is less stock of the company held by anyone it increases the price . Shareholders can change corporate behavior lik Carl Icahn but here it seems like it was very opaque to even monitor, the other way they can enforce good behavior is to sell the stock.
lottin 5y ago
Shareholders can't be asked to police the company. That's not their job. They don't have the resources nor the expertise to do it.
- carnitine 5y ago
  All you need is a few activist hedge funds to do the policing. You can’t blanket say that shareholders lack resources.
- selfhoster11 5y ago
  So they can push for ever greater profits, but not bear any responsibility?
- netcan 5y ago
  No, but if fines are the mechanism for punishment/restitution, they may as well be marked to market cap.
- dtech 5y ago

fnordfnordfnord 5y ago

>https://www.bbc.com/news/explainers-51265169 https://www.bbc.com/news/explainers-51265169 >Michael Coscia in 2013. >Coscia was sentenced to three years in prison for spoofing futures markets using a specially designed computer program, making an estimated $1.6m (£1.2m).