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It's an odd situation, for sure. After all, these share orders were being entered by humans and could have been sitting in the market order books for several se

It's an odd situation, for sure. After all, these share orders were being entered by humans and could have been sitting in the market order books for several seconds. In that time, anyone could have taken their orders. So they really were genuine offers to sell and buy shares. Compare that to high frequency traders where it is alleged that 'flash' market orders are submitted and cancelled so fast that no-one could actually take them. How can that be considered OK and yet these human traders are labelled fraudulent?

BogdanCalin 12y ago
That's exactly what I was thinking. When high frequency traders are doing it it's OK but when this guy tricks them into actually taking some risks it's fraud.
- joosters 12y ago
  I think the only evidence for fraud here are the recordings of the people discussing their aims of manipulating the markets. If those didn't exist then it does sound like the trades alone could never be considered market manipulation. If that is the case, am I breaking the law if I just buy some shares and, during the phone call with my dealer, make a comment that I hope my share purchase drives the price up?
  - kasey_junk 12y ago
    No. Hoping that your trade moves the market one way or the other is completely different than placing orders you hope never trade. Why is it different? Because the law says it is.
  - FireBeyond 12y ago
    "If that is the case, am I breaking the law if I just buy some shares and, during the phone call with my dealer, make a comment that I hope my share purchase drives the price up?" And if it's not, why isn't it? Basically it's a double standard, because (most of) the markets are too cosy with HFT firms.
    - kasey_junk 12y ago
      No. Spoofing harms HFT. They would prefer if it didn't happen (well most would prefer it). If this were the case of regulatory capture by HFT firms (which are not big enough or powerful enough to capture much) they would make spoofing harder to do.
- throwaway183839 12y ago
  When most high frequency traders trade, they are not actively trying to manipulate the market for their own gain (in the cases where they are manipulating the market, they should of course be punished). Most high frequency traders are trying to make money by providing liquidity, i.e. offering to buy and sell at a better price than the rest of the market. This benefits both the HFT (because they make money) and other market participants (because they can trade at lower spreads). What these guys were doing was entering orders that they actively didn't want to trade, so that they could push around the price of the stock and repeatedly scalp a small profit. They had no intention of improving the quality of the market (either by narrowing spreads or improving price discovery). In fact they were actively making the market work less well, by impeding the process of price discovery with their "bluff" orders. The whole point of a market is to be an efficient mechanism for matching buyers and sellers at a fair price. If someone is deliberately trying to distort the fair price, they are undermining the value of the market (and other market participants, not only HFTs, will suffer because their trades will no longer take place at the 'fair' price, but instead at the 'fair' price plus whatever direction the scalpers happen to be pushing it in at the moment).
  - BogdanCalin 12y ago
    95 percent of high-frequency trader orders are cancelled (so fast that nobody can take them). Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. I don't buy the "providing liquidity" defense of HFT. http://blogs.wsj.com/moneybeat/2014/04/03/schwab-on-hft-growing-cancer-that-must-be-addressed/ http://blogs.wsj.com/moneybeat/2014/04/03/schwab-on-hft-grow...
    - gd1 12y ago
      >95 percent of high-frequency trader orders are cancelled So what. 99.9999999% of the pixels blatted onto your screen aren't looked at. Why do you care? Let's say I'm making a market in a derivative product (A), one where the price is 'derived' from the price of another product (B). By a simple equation. Let's say A = 2 * B. No one likes product A. No one trades it. Lots of people trade B. All day long B moves around. B ticks up, I have to cancel my bid and offer on A and move them up 2 ticks (I do it quickly, cos I'm an evil HFT). B ticks down, I have to cancel my bid and offer on B and move it down 2 ticks. All day long I move my quotes. No one fucking trades. 100% of my orders are cancelled and replaced on a different price. Why do you care? A limit order is a limit order. It isn't doing anyone any harm by being there. >Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. McDonalds are profitable on 100% of their trading days. Casinos are likely profitable on 99% of their trading days. If they weren't profitable they wouldn't be doing it. Market-makers like Virtu are more service providers than they are 'traders'. They are the middle men who allow others to trade and take risk, and extract a small fee for doing so. Here's a good analysis to read: http://blogs.wsj.com/moneybeat/2014/11/13/virtus-losing-day-was-1-in-1238-odds-says-it-shouldnt-have-happened-at-all/ http://blogs.wsj.com/moneybeat/2014/11/13/virtus-losing-day-...
rtpg 12y ago
I don't get it, why is it that market orders don't have a lifetime? I know we used to have a granularity on price that was pretty thick, what would be the issue with having an order have to be on the market for at least a second? I have my doubts about sub-second trading increasing liquidity and making the markets more effecient
- gd1 12y ago
  The issue would be that market makers would need to inject their orders (quotes) at a greater distance from the mid-price, in order to protect themselves against market movement during the minimum lifetime you propose. If my bid and offer is obligated to sit in the market for x seconds, then it is potentially a sitting duck for any adverse event during that time period, and I would have to quote wider to cover that possibility.
gd1 12y ago
>So they really were genuine offers to sell and buy shares. They weren't genuine, that's the point. They were offers made with the express intention and hope that they never get filled. The orders from high frequency traders in contrast are honest orders, when they are sent they honestly express that the trader wants to trade at that price. The fact that they may then be withdrawn 800 microseconds later when the HFT recalculates its price in response to some stimuli and changes its mind about the price, doesn't change the fact they were honest. They're just fast as well. That's what control systems do, they update their outputs when their inputs change.
- ars 12y ago
  Why does his state of mind matter? I mean it matters for criminal matters, but why for civil? Either he actually was willing to make good on his offer or he wasn't. His reasons are irrelevant. "hope that they never get filled" is not a reason to make this a crime. If he actually refused to fill them, then sure. But hoping?
  - gd1 12y ago
    I don't write the rules, I'm just telling you what they are. I guess it boils down to the idea that bluffing is banned in financial markets. What differentiates making a bluff from a regular raise in poker? You have to 'make good' on the bet either way, yes? The difference is that you're 'hoping' that you don't get called, 'hoping' that your opponent folds. Not allowed in markets. Probably a good thing too, or they'd be even more chaotic as they degenerate into bluff and double-bluff. Having said that spoofing is still widespread, likely because it is hard to prove and some regulators aren't as tough on it as they should be.
    - FireBeyond 12y ago
      Saying that bluffing is not allowed is disingenuous. Why, then, are sellers allowed to break up big blocks of stocks into smaller orders to avoid triggering algorithms in the market? How is that not bluffing. "I have 1M shares to sell, but if I do that, I'm going to take a bath. But if I trickle them in, break them up, etc..." - what makes one strategy, and the other a bluff?
yummyfajitas 12y ago
You can take an order, at least probabilistically. Suppose an HFT has an order on the market from 0.30 to 0.40. If you submit an order at 0.00, your order will arrive at some time uniformly distributed between 0.00 and 1.00. With probability 0.1 you'll get a fill.

BogdanCalin 12y ago

That's exactly what I was thinking. When high frequency traders are doing it it's OK but when this guy tricks them into actually taking some risks it's fraud.

joosters 12y ago
I think the only evidence for fraud here are the recordings of the people discussing their aims of manipulating the markets. If those didn't exist then it does sound like the trades alone could never be considered market manipulation. If that is the case, am I breaking the law if I just buy some shares and, during the phone call with my dealer, make a comment that I hope my share purchase drives the price up?
- kasey_junk 12y ago
  No. Hoping that your trade moves the market one way or the other is completely different than placing orders you hope never trade. Why is it different? Because the law says it is.
- FireBeyond 12y ago
  "If that is the case, am I breaking the law if I just buy some shares and, during the phone call with my dealer, make a comment that I hope my share purchase drives the price up?" And if it's not, why isn't it? Basically it's a double standard, because (most of) the markets are too cosy with HFT firms.
  - kasey_junk 12y ago
    No. Spoofing harms HFT. They would prefer if it didn't happen (well most would prefer it). If this were the case of regulatory capture by HFT firms (which are not big enough or powerful enough to capture much) they would make spoofing harder to do.
throwaway183839 12y ago
When most high frequency traders trade, they are not actively trying to manipulate the market for their own gain (in the cases where they are manipulating the market, they should of course be punished). Most high frequency traders are trying to make money by providing liquidity, i.e. offering to buy and sell at a better price than the rest of the market. This benefits both the HFT (because they make money) and other market participants (because they can trade at lower spreads). What these guys were doing was entering orders that they actively didn't want to trade, so that they could push around the price of the stock and repeatedly scalp a small profit. They had no intention of improving the quality of the market (either by narrowing spreads or improving price discovery). In fact they were actively making the market work less well, by impeding the process of price discovery with their "bluff" orders. The whole point of a market is to be an efficient mechanism for matching buyers and sellers at a fair price. If someone is deliberately trying to distort the fair price, they are undermining the value of the market (and other market participants, not only HFTs, will suffer because their trades will no longer take place at the 'fair' price, but instead at the 'fair' price plus whatever direction the scalpers happen to be pushing it in at the moment).
- BogdanCalin 12y ago
  95 percent of high-frequency trader orders are cancelled (so fast that nobody can take them). Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. I don't buy the "providing liquidity" defense of HFT. http://blogs.wsj.com/moneybeat/2014/04/03/schwab-on-hft-growing-cancer-that-must-be-addressed/ http://blogs.wsj.com/moneybeat/2014/04/03/schwab-on-hft-grow...
  - gd1 12y ago
    >95 percent of high-frequency trader orders are cancelled So what. 99.9999999% of the pixels blatted onto your screen aren't looked at. Why do you care? Let's say I'm making a market in a derivative product (A), one where the price is 'derived' from the price of another product (B). By a simple equation. Let's say A = 2 * B. No one likes product A. No one trades it. Lots of people trade B. All day long B moves around. B ticks up, I have to cancel my bid and offer on A and move them up 2 ticks (I do it quickly, cos I'm an evil HFT). B ticks down, I have to cancel my bid and offer on B and move it down 2 ticks. All day long I move my quotes. No one fucking trades. 100% of my orders are cancelled and replaced on a different price. Why do you care? A limit order is a limit order. It isn't doing anyone any harm by being there. >Some high-frequency traders have claimed to be profitable on over 99 percent of their trading days. McDonalds are profitable on 100% of their trading days. Casinos are likely profitable on 99% of their trading days. If they weren't profitable they wouldn't be doing it. Market-makers like Virtu are more service providers than they are 'traders'. They are the middle men who allow others to trade and take risk, and extract a small fee for doing so. Here's a good analysis to read: http://blogs.wsj.com/moneybeat/2014/11/13/virtus-losing-day-was-1-in-1238-odds-says-it-shouldnt-have-happened-at-all/ http://blogs.wsj.com/moneybeat/2014/11/13/virtus-losing-day-...

rtpg 12y ago

I don't get it, why is it that market orders don't have a lifetime? I know we used to have a granularity on price that was pretty thick, what would be the issue with having an order have to be on the market for at least a second? I have my doubts about sub-second trading increasing liquidity and making the markets more effecient

gd1 12y ago
The issue would be that market makers would need to inject their orders (quotes) at a greater distance from the mid-price, in order to protect themselves against market movement during the minimum lifetime you propose. If my bid and offer is obligated to sit in the market for x seconds, then it is potentially a sitting duck for any adverse event during that time period, and I would have to quote wider to cover that possibility.

gd1 12y ago

>So they really were genuine offers to sell and buy shares. They weren't genuine, that's the point. They were offers made with the express intention and hope that they never get filled. The orders from high frequency traders in contrast are honest orders, when they are sent they honestly express that the trader wants to trade at that price. The fact that they may then be withdrawn 800 microseconds later when the HFT recalculates its price in response to some stimuli and changes its mind about the price, doesn't change the fact they were honest. They're just fast as well. That's what control systems do, they update their outputs when their inputs change.

ars 12y ago
Why does his state of mind matter? I mean it matters for criminal matters, but why for civil? Either he actually was willing to make good on his offer or he wasn't. His reasons are irrelevant. "hope that they never get filled" is not a reason to make this a crime. If he actually refused to fill them, then sure. But hoping?
- gd1 12y ago
  I don't write the rules, I'm just telling you what they are. I guess it boils down to the idea that bluffing is banned in financial markets. What differentiates making a bluff from a regular raise in poker? You have to 'make good' on the bet either way, yes? The difference is that you're 'hoping' that you don't get called, 'hoping' that your opponent folds. Not allowed in markets. Probably a good thing too, or they'd be even more chaotic as they degenerate into bluff and double-bluff. Having said that spoofing is still widespread, likely because it is hard to prove and some regulators aren't as tough on it as they should be.
  - FireBeyond 12y ago
    Saying that bluffing is not allowed is disingenuous. Why, then, are sellers allowed to break up big blocks of stocks into smaller orders to avoid triggering algorithms in the market? How is that not bluffing. "I have 1M shares to sell, but if I do that, I'm going to take a bath. But if I trickle them in, break them up, etc..." - what makes one strategy, and the other a bluff?

yummyfajitas 12y ago

You can take an order, at least probabilistically. Suppose an HFT has an order on the market from 0.30 to 0.40. If you submit an order at 0.00, your order will arrive at some time uniformly distributed between 0.00 and 1.00. With probability 0.1 you'll get a fill.