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0 pointshatesinterviews4y ago0 comments

> That might looks suspicious sure, but there may be other factors (not reflected in the book) influencing a change of desire on my part

I think your example would easily satisfy regulators. But you have to have the logging with real time stamps to prove it or you need to be able to reconstruct the internal state by replaying the market data against that version of the code.

Same goes for other pairs trades or other non-book signals. For any automated trading on regulated exchanges, you need to be able to explain to regulators why you chose to send an order. Otherwise you’re basically admitting that you don’t understand / have control over your algorithm, which they will obviously object to.

> I've never come across a strategy that responds to volume changes far from the BBO.

I agree it’s unlikely that a deep quote will provoke an immediate action. But sustained changes in the book will over time get aggregated into moving averages etc and influence behaviors in the long term (for whatever timescale may be appropriate).

> Quantity change far away from the action is mostly noise.

I agree that individual quotes are noisy, and it’s hard to extract signal from the noise. A limit order book by definition is supposed to quantify an aggregated demand to buy/sell, and thus it should be meaningful to aggregate over it to construct a distribution. Spoofing distorts that.

No one gets investigated for spoofing for sending a single order. It’s a persistent pattern that stands out from the noise.

0 comments

derriz4y ago

> I think your example would easily satisfy regulators.

That was kind of my point - the example scenario is clearly legitimate. The problem is that if spoofing is defined as submitting an order with no intent for it to execute, then in that scenario, that's exactly what I've done (for one of the orders).

So sure, it's seems clear that I should get a pass for doing it just once. What if I was doing a trade like this every day or tens or thousands of times a day? To the other participants, it looks like I'm flooding the book with orders which 50% of the time just get pulled for no apparent reason. The rule is supposed to protect other participants from being confused by such quotes, no?

Btw, I think it just muddies the waters by bringing up automated trading and the charge of "not having control over your algorithm" which is distinct from the specific charge of order spoofing. Whether the orders are entered manually or by a program does not fundamentally change their 'spoofyness' to other participants.

The fundamental issue I have is there is no quantifiable or clearly stated difference between spoofing and legitimate exposure control. I dislike laws which are so vaguely defined that the only way to remain law-abiding isn't to avoid specific behaviors but to avoid attracting any attention from the authorities.

ycombobreaker4y ago

But at time of submission, you did intend for one of the orders to execute. you didn't know which one, and you'd be happy with either one filled. those orders look bona finde to me.

An order placed, whose entire purpose is to elicit a reaction from others, is clearly spoofing. the spoofer would be unhappy to get filled at all.

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