Related to the discussion. http://seekingalpha.com/article/253...how-you-get-screwed-in-the-stock-market?ifp=0
up to 25 years for spoofing ... From one extreme to the other: http://www.ft.com/intl/cms/s/0/9bf9...44feab7de.html?siteedition=intl#axzz3EhFiikRr
Spoofing: Submitting limit orders with no expectation (or intention) that these orders would be filled. The real intent is to artificially distort the balance in the exchange order book. For example, submit a large number of orders on the buy side, to induce the up movement in price. In effect, you are "painting the tape", i.e. make it look attractive in a particular way. Stuffing: Submitting a very large number of orders (like 10,000 every second), to overwhelm the order processing software at the exchange. It's a type of "denial of service attack", with the purpose of delaying the dissemination of market information to other market participants. For example, if you want to make some funny market transaction, and don't want the market participants to immediately react to it, you place the order for transaction, and immediately follow with the flood of fake orders. Smoking: Submitting limit orders on one side with the intent to trade to the opposite side. For example, you want to sell XYZ high. Submit a large number of buy orders, which pushes the buyers to submit even higher limit orders, which moves the price up. Then sell at the high price. Thus, you "smoke out" the sellers, and then sell. Layering: Submitting visible orders on one side of the book, and at the same time submitting hidden orders on the other side of the book. Not sure how this one works, as I am not aware of the way to submit hidden orders on a regulated exchange. My guess is that this involves two different exchanges: submitting orders on one side of the regular exchange (such as CME), and at the same time submitting orders on the opposite side of the OTC exchange (the dark pool exchange). Pre-open time arbitrage: Not sure what the official term for this, so I invented this term. This involves submitting orders on one side of the book during the "pre-open" period, attracting the "paper" (i.e. non-sophisticated traders). Then immediately before the "no-cancel" period, the orders are cancelled, and the orders on the opposite side are entered. As such, you lured the "suckers" to enter on the wrong side of the market. Queue draining: This is also my own term, as I don't know what the official term for this. This involves submitting orders in such a way that moves your orders higher in the order priority queue. For example, let's say the market is 1000 contracts to buy at 100.00, and 1000 contracts to sell at 100.10. When you submit 100 contracts to buy at 100.00, you joined the best bid, and placed at the end of the queue. Next, you "drain" the buy queue by selling 1000 contracts at the market. This results in your 100 contracts buy order being promoted to the front of the queue. From here, you can do some goofy stuff, as you are essentially in control of the best bid. Effectively, you are trading with yourself, with the purpose of gaining the priority in the order queue. Maybe a better term for this is "self-matching".
Spoofing was always illegal but tolerated like naked short selling.... Speed trader charged in first U.S. criminal 'spoofing' case By Reuters Thursday, October 02, 2014 Email this story | News Tracker | Reprints | Printable Version WASHINGTON (Reuters)—High-frequency trader Michael Coscia was charged with manipulating commodity futures prices in the first U.S. federal criminal prosecution of the practice of "spoofing," the Justice Department said on Thursday [Oct. 2]. Coscia and his high-speed trading firm, Panther Energy Trading, were fined $3.1 million by regulators in the United States and Britain in July 2013 for market manipulation and ordered to disgorge $2.7 million in profits.
Imagine you have to tell your inmates you are there for "spoofing" ...You would end up in the showers 10 times per day...
How is spoofing defined? How do you know the intent of someone's order? How can someone possibly prove spoofing? The fact that these orders are live (even for a brief second), means that they can be executed against. How can that possibly be spoofing?
The high ratio of cancelled orders vs executed orders is probably a good indication of spoofing. 100:1 or higher would raise my eyebrow, if I were the regulator. Another indication is how long, on average, are your orders active, before they are cancelled. One second or less should probably be be suspicious.
Okay, then there should be a legal black and white definition of what spoofing is. Can a spoofer not get filled on those spoofing orders? It just seems like the spoofer will be taken out to the woodshed eventually and will either go bankrupt or change his strategy. The market can take care of itself. If the regulators were really serious about this stuff they could just impose a minimum lifetime of an order on the exchanges - that way there could not be any spoofing to begin with (if that is a part of its "definition).