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Comment by gd1 | Hacker News Reader

>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 The fact that they may then be withdrawn 800 microseconds later when the HFT recalculates its price in response to some stimuli and changes its mind about the price, doesn't change the fact they were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.

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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?

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.

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?

What you describe is called 'slow playing' in poker, not bluffing. Put it this way, if spoofing (bluffing) were legalized in markets, how do you think it would work out for the little guy? Who has the advantage in no-limit Texas hold em? The guy with the biggest chip stack bullies the pot.

One is hiding what you intend to do. The other is lying about the intention.

What makes one worthy of legal rules and the other not? Don't know.

If you're saying that HFT algorithms don't publish trades from a pure manipulation purpose I call BS. There are many HFT firms that been caught with their hand in the cookie jar doing just that, the problem is that they are even more that hasn't.

It's really hard to prove intent when trading is done in microseconds and the truth lies somewhere in the algorithm. Those who got caught got caught mainly because of their email trail

I would think that is is easier to prove intent in HFT (with the appropriate court orders). The source code should make it clear what the intent was.

Why? Very rarely will you see something that like:

//spoofing logic goes here.

It is usually expressed in a variety of algorithms in a variety of places. Further, even getting the code is very far down the path of legal proceedings and having the expertise to suss out intent is outside of the skill set of most regulators. Looking through emails/requirements materials and/or having an informant is much more in their skill set.

I don't think this makes it fraud. Fraud would be the inability to deliver.

He is putting orders in with the intention and hope that they never get filled, but as long as they are both fillable and filled when matched, what fraud has occurred?

I can send you an offer for something with the intent and hope you won't accept it - maybe it's a lowball offer to sell my car - but as long as I sell it to you when you accept and an accord has been reached, no fraud has been committed.

(edited for tense)

Well ok, it's not fraud. But it is a securities law violation. Because this specific act is illegal.

that the trader did not want them filled does not mean that they could not be filled.

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