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Spoofers Tricked High-Speed Traders by Hitting Keys Fast

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Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#11

Post by rtpg »

joosters wrote: post #3
wodenokoto wrote: post #2

I'm not even sure if I would consider this fraud (personally). I mean, if the initial outstanding orders were at risc of actually being bought and he had to deliver, then I think it is just fine that the market is naive enough to judge the worth of a company on some anonymous seller, rather than company performance and market-place condition of said company. What's next, you start moving stock prices through twitter…

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 ac…

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

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#13

Post by gd1 »

wodenokoto wrote: post #2

I'm not even sure if I would consider this fraud (personally). I mean, if the initial outstanding orders were at risc of actually being bought and he had to deliver, then I think it is just fine that the market is naive enough to judge the worth of a company on some anonymous seller, rather than company performance and market-place condition of said company. What's next, you start moving stock prices through twitter…

No, it is definitely fraud. The rule is that you may not enter an order (quote) that you have no intention of filling. You're perfectly entitled to change your mind afterwards (for whatever reason) and then cancel the order, but if you send an order with the initial objective of never having it execute, it is a fraudulent order and and a case of market manipulation.

Always hard to prove though, since it goes to the intention of the market participant.

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#14

Post by gd1 »

rtpg wrote: post #11
joosters wrote: post #3

Earlier quoted context omitted.

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 ac…

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

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.

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#15

Post by gd1 »

joosters wrote: post #3
wodenokoto wrote: post #2

I'm not even sure if I would consider this fraud (personally). I mean, if the initial outstanding orders were at risc of actually being bought and he had to deliver, then I think it is just fine that the market is naive enough to judge the worth of a company on some anonymous seller, rather than company performance and market-place condition of said company. What's next, you start moving stock prices through twitter…

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 ac…

>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.

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#16

Post by Synesthesis »

Remember when S. Hawking, E. Musk, and others warned to be cautious about the future of AI? I think the contrast defined here between the AI: HFT (High frequency trading algorithms) and 'Monkeys' (the alleged fraudsters, bashing buttons in a quick and manipulative fashion) shows already that we don't like to judge AI the same as we do with humans; while the manipulative effect of both techniques is hard to judge and compare, the argument made is mainly of another order: intent.

On the highest level both AI/HFT and Monkey do this for their own earnings. Society decides that profits out of investment are well earned because they serve some important mechanisms that allow companies to operate. HFT used this as an important argument: they add volatility to the market thus allowing more realistic prices. But the same argument can also be made by the Monkeys.

On a lower level we now start to distinguish: the Monkey techniques are manipulative and were used out of malicious intent. Some AI/HFT techniques may be manipulative but intent disguised: if the technique or decision to "manipulate" was devised by AI, who is to blame?

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#17

Post by ars »

gd1 wrote: post #15
joosters wrote: post #3

Earlier quoted context omitted.

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 ac…

>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…

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?

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#19

Post by mapt »

gd1 wrote: post #13
wodenokoto wrote: post #2

I'm not even sure if I would consider this fraud (personally). I mean, if the initial outstanding orders were at risc of actually being bought and he had to deliver, then I think it is just fine that the market is naive enough to judge the worth of a company on some anonymous seller, rather than company performance and market-place condition of said company. What's next, you start moving stock prices through twitter…

No, it is definitely fraud. The rule is that you may not enter an order (quote) that you have no intention of filling. You're perfectly entitled to change your mind afterwards (for whatever reason) and then cancel the order, but if you send an order with the initial objective of never having it execute, it is a fraudulent order and and a case of market manipulation. Always hard to prove though, since it goes to the i…

Pardon my ignorance, but why is it possible to change your mind afterward and cancel the order? Why does the market not clear orders irrevocably (executing automatically) as soon as they are matched? Why this "sending" disengaged from actual market actions?

Re: Spoofers Tricked High-Speed Traders by Hitting Keys Fast

#20

Post by lmm »

wodenokoto wrote: post #2

I'm not even sure if I would consider this fraud (personally). I mean, if the initial outstanding orders were at risc of actually being bought and he had to deliver, then I think it is just fine that the market is naive enough to judge the worth of a company on some anonymous seller, rather than company performance and market-place condition of said company. What's next, you start moving stock prices through twitter…

The order book would quickly become a tragedy of the commons - everyone's free to add quotes to it, and doing so costs everyone else. In a perfect frictionless free market maybe exchanges could charge appropriately to put in an order, and rebate the proceeds to people who use the order book. But that's probably impractical (if nothing else, people would send their orders to other exchanges), and would create bad incentives; we'd lose the public good of the displayed, honest order book.

> If he could in fact not deliver the initial sales, then not only is it fraud, but it is a broken system that allows you to put up stuff for sale that you don't own.

Real world commerce works on trust and sometimes retroactive enforcement. If I order ten tons of timber, the world doesn't force the person selling it to prove they have it in stock, I just get to sue them if they don't deliver. Somehow it all manages to work out.

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