Spoofing...

Someone might choose to put in orders with a large spread to accommodate someone wanting a large bet or lay.  If the market drifts towards their order, they will cancel as they don't have the big spread anymore.  This would look exactly like "spoofing" but it is genuine activity.

They made it illegal in 2010, I think however I'm unsure if the PPT is still in operation

The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence. The team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission.

"Plunge Protection Team" was the nickname given to the Working Group by The Washington Post in 1997. The team was initially perceived by some to have been created solely to shore up the markets or even manipulate them. The team was created in response to the 1987 market crash.

The guy being prosecuted is a lone trader being targeted because he worked out how to beat the real manipulators = the Wall St High Frequency Traders with computers located onsite at exchanges and special rights to get "peaks" at the order flow before the rest of the market.  They systematically front run all large orders due to built in conferred advantages pinching a slice of your pension fund orders with almost no risk (a bit like if BF let people pay for the right to "see" every order being placed before it is placed - frightening thought).  They place and cancel fake orders 20 x a second!

The guy still was a point and click trader using a mouse but found his orders (large) were hard to fill cause people jumped in front of him so he worked out a way to hide by placing orders during the confusion or price changes.

The powerful could not let that happen as it might mean they make less money and so have targeted him. In the process they are revealing themselves and his strategy and so it may make it harder for them to front run everything with their unfair advantage in the longer term.

He was not spoofing in the BF sense.  He was really just trying to trade and scalp without being front run bt computers working at milli second speed.

By the way the PPT virtually runs the US market behind the scenes on a daily basis as a matter economic policy - stock market up = good, so stops it falling less than a few % and buys on bad news to stop plunges. Like the most massive spoof bets ever in history.  But as we know on BF if something gets way out of line with the true value it can drop like a stone once people head for the door. So the PPT will one day struggle to "save" the market (or may let it fall as in 2008 to scare congress into rescuing the banks and to let the insiders clean up on the way down and again on the way up).  That is spoofing at the trillion dollar level.  With enough printed money and simple indexes to buy you can spoof to infinity - almost.

Apr 29, 2015 -- 3:29PM, zooot wrote:

The guy being prosecuted is a lone trader being targeted because he worked out how to beat the real manipulators = the Wall St High Frequency Traders with computers located onsite at exchanges and special rights to get "peaks" at the order flow before the rest of the market.  They systematically front run all large orders due to built in conferred advantages pinching a slice of your pension fund orders with almost no risk (a bit like if BF let people pay for the right to "see" every order being placed before it is placed - frightening thought).  They place and cancel fake orders 20 x a second!The guy still was a point and click trader using a mouse but found his orders (large) were hard to fill cause people jumped in front of him so he worked out a way to hide by placing orders during the confusion or price changes.The powerful could not let that happen as it might mean they make less money and so have targeted him. In the process they are revealing themselves and his strategy and so it may make it harder for them to front run everything with their unfair advantage in the longer term.He was not spoofing in the BF sense.  He was really just trying to trade and scalp without being front run bt computers working at milli second speed.

He had £100k in a betting account. Have to wonder if it was because he was loaded and enjoyed gambling, or was using similar techniques on here when he wasn't trading the stock markets.

Darlo, he made an estimated £30million over 5 years, so he was loaded....though he may not have been when it was initially deposited I suppose?

I found a factsheet at the fca: https://www.fca.org.uk/static/documents/fsa-market-abuse-factsheet.pdf
Interesting is this point:
What is market abuse?
...
4 - Manipulating transactions – trading, or placing orders to trade, that gives a false or misleading
impression of the supply of, or demand for, one or more investments, raising the price of the
investment to an abnormal or artificial level
...

Whether this only applies to fsa regulated companies or not, or betfair/daq who knows?  I am sure there is stuff in the t&cs here but who has actually read them?

I think, like you wrote dave1357, it would be easy to misinterpret genuine trades, i.e., a system such as whilst the price is under x it is a lay but once it passes x it's a back... this could look like spoofing.


It does seem to like the term "Financial services" is becoming a misnomer for fraud.  I believe much of the money printing has ended up in the stock markets, pushing it to ridiculous levels on the back of low liquidity (anecdotally).  Those in the know, do appear to be bracing themselves for an impending crash (which I thought would have happened 3 years ago lol - the PPT sound like they are great at their job).  I think this is visible by the rush into physical assets, creating numerous bubbles i.e., London property etc.

like the regulators and most journalists, i don't understand this.

i struggle with the idea that you place or present an order on an exchange that you can guarantee will never be taken.

seems like an invitation to manipulate, which given that they outlawed spoofing, is exactly what happened.

as for Singh Sarao, if he is in any way responsible, you get the feeling he triggered a meltdown from the HFT bots, rather than causing that sort of carnage on his own.

and getafix, surely the difference on betfair and ****, is that the manipulators bet can, theoretically,  be taken.

DStyle that is true... however, in the early days of betfair (I remember reading on this forum) that there was a bug in which if you fired in a bet and cancelled it immediately it would appear on the screen to other users for x amount of time (x being a much bigger amount of time than the actual time it existed) due to a cache mechanism they employed.  So in essence, phantom bets could be placed.  Risk of taking advantage of such a bug would be proportional with where in the queue you wanted to place such bets, but it would still be very small if you knew what you were doing.  There may exists other unknown oddities with the technology that allow advantages, who knows?

there may still be on here, but it would still be a loophole and a design flaw that needed fixing.

i cannot understand why they'd allow it and continue to allow it on financial exchanges. it's a crazy invitation to manipulate. does anyone know the reason why you can do it?

could he have covered his tracks better, I don't know the details but he must have been reasonably bright?

as for Singh Sarao, if he is in any way responsible, you get the feeling he triggered a meltdown from the HFT bots, rather than causing that sort of carnage on his own.

I totally agree. While I don't know what laws he's broken exactly, since I don't understand them properly, he is by no means (singularly) responsible for the flash crash.

Apr 30, 2015 -- 6:45AM, Getafix wrote:

DStyle that is true... however, in the early days of betfair (I remember reading on this forum) that there was a bug in which if you fired in a bet and cancelled it immediately it would appear on the screen to other users for x amount of time (x being a much bigger amount of time than the actual time it existed) due to a cache mechanism they employed.

There are only two hard things in Computer Science: cache invalidation and naming things

I would guess its cache invalidation.  Obviously an edge case or 2, what about the integer overflow bet on here, that was massive 600m liability on an everyday race. Something like that would spook the market until the cache was invalidated and things return to normal.

Agree its not this guy in his bedroom, but a uncovered flaw in the system. His wealth has been doubted, and seems the authorities want to big up his ability/wealth to cover the fact the the systems are fragile

The standard procedure of US prosecutors is to tell lies, exaggerate bring ridiculous charges so that their victim, errr I mean the accused, pleads to a lesser charge.  I just wish that when they peddle lies with a view to extradition, a judge would have the balls to bang them in jail for contempt.

brendanuk1 30 Apr 15 15:41 
There are only two hard things in Computer Science: cache invalidation and naming things

I would guess its cache invalidation.  Obviously an edge case or 2, what about the integer overflow bet on here, that was massive 600m liability on an everyday race. Something like that would spook the market until the cache was invalidated and things return to normal.

Agree its not this guy in his bedroom, but a uncovered flaw in the system. His wealth has been doubted, and seems the authorities want to big up his ability/wealth to cover the fact the the systems are fragile


he's failed to post bail.

and regarding the extradition, i always thought there was a pretty strong case for Garry McKinnon, but I don't see it here. it's a globally traded market and surely we have adequate legislation to prosecute in this country.

.
http://www.justice.gov/sites/default/files/opa/press-releases/attachments/2015/04/21/sarao_criminal_complaint.pdf

lots of info in that

Via an email I have reviewed dated March 23, 2010, the CME
contacted SARAO's FCM to alert them that SARAO "just had 1613 'This order is not
in the book' reject messages in the last 5 minutes." (Based on my review of the
emails and my participation in this investigation, I believe that these rejection
messages were issued when a trader sought to fill one of SARAO's orders, only to
find that the order had already been canceled.) A member of the FCM's compliance
department looked into the issue and reported by email to another employee of the
FCM that he could "see that [SARAO]'s using [Automated Trading Program #1]"
and that "[i]t looks like he's deleting a huge amount of orders a second which seems
to be the root cause of the issue." Another representative of the FCM forwarded
this email correspondence to SARAO, informing him that the CME had contacted
the FCM about his cancellation of a "huge amount of orders from the order book,''
and that such conduct was "not allowed." On March 31, 2010, SARAO responded by
email, writing to the FCM and CME representatives that he would "like to apologise
for any inconvenience caused by this." SARAO claimed that he "was just showing a
friend of mine what occurs on the bid side of the market almost 24 hours a day, by
the high frequency geeks,'' and questioned whether the CME's action in responding
to his conduct meant that "the mass manipulation of the high frequency nerds is
going to end." Referring to another trader, SARAO further asked, "I see he
continues to do this all day every day, yet you have a problem when I showed
someone it for 5 mins?"

"just had 1613 'This order is not in the book' reject messages in the last 5 minutes
The orders seem to be there to trade but are not actually there when it comes down to it, seems like cache issue Appears to be in book but it is not

using the dynamic layering technique for a total of 212.15
minutes. When the dynamic layering technique was active, it placed downward
pressure on the market price of E-Minis. SARAO exploited the price movements

during this period by executing 8,651 buy trades (totaling 95,229 lots) and 9,124 sell
trades (totaling 95,229 lots) with a total notional value of approximately $11.3
billion, and obtained approximately $821,389 in net profits from his E·Mini trades

numbers seem big 11.billion, but he only had 1000s at risk, he is just buying and selling, cycling the money

Very interesting link that Brendanuk1, thanks for posting that.

From that document if I understood correctly he was placing 5-6 simultaneous spoofs in a layering technique.  Using one of the examples, he had 500-600 lots and a price of circa 1150.  So from my estimates, he would need at least say 6*600*1150 = 4,140,000 in credit just to place these.  That seems pretty high for an average player.  Unless he was loaded initially, I wonder how he managed to play this game in the first place as it would need a huge deal of capital to start up.  Especially to spoof such a large market?  Maybe he started in smaller markets?

he had 4m "on loan for trading" or something similar, i read some where. didnt say where from, just googled, doesnt say wher it came from (could be himself from offshore?)

Sarao was granted conditional bail on sureties of £5m from himself and £50,000 from his family, after the court was told he had £5m in a trading account, of which £4.7m was a loan.

.
http://www.theguardian.com/business/2015/apr/22/flash-crash-case-uk-trader-to-fight-extradition-to-us

DStyle:
i struggle with the idea that you place or present an order on an exchange that you can guarantee will never be taken.

My understanding is that, at least on the Chicago exchange on which Sarao was trading, orders are filled sequentially rather than as a block. So if a high-frequency algorithm put up a spoofing order to sell 10,000 shares in Anacott Steel and Mr Sarao clicked his mouse to buy those 10,000 shares, he would be matched for the first share, but before he could be matched for a second share the algorithm would have cancelled the remaining 9,999 on offer. Sarao got the hump over this, read the rule book and found a way of placing his orders which got them matched as a block.

By grassing Sarao to the authorities at this late stage the people running these high-frequency algorithms were killing two birds with one stone. Not only were they taking out the chap who had worked out how to beat their spoofing, but also they were ensuring that nobody who was actually responsible for the flash crash will be prosecuted owing to the 5-year statute of limitations. By the time the dust settles on the Sarao case, the 5-year deadline will be long gone.

Disclaimer: I have never bought or sold a share in my life, so don't take this as gospel.

pretty ridiculous


spoofing only has an impact on people that are easy to manipulate

everybody else trades stocks or bets based on his valuation and happily accepts deviations from underlying value caused by the spoofed or zoooted amateur players in the markets

The whole point is that you CAN'T accept any deviations from underlying value caused by spoofing, because as soon as you try to, they disappear. That's why Sarao resorted to the techniques which got him arrested.

think he means why the market got fooked from this spoofing behaviour when underlying value didnt radically change in the 10 minutes of the flash crash.

Someone was believing the spoofing of a guy in his bedroom was good reason to drop the index 100 points (or whatever it was)

iirc brendan it was on the day of the last UK election - which would be a good time to spook a market.

the guy is being scapegoated.

I doubt it happens on bf and if it does it's much of a problem.

Although big orders just below the market do tend to move it. You could spoof the market, but risky IMO. I wouldn't do it.

the guy put in valid orders....he can always get hit, he has his own money at risk......no problem at all happens all the time

also he did not cause a crash, all bs..... that move was just random market noise, got corrected soon, nobody cares.....some volatility from time to time is a good thing, helps clean the markets and get rid of people that don't belong (also see suisse currency peg)...thats what free markets always do in the end, so nobody should stop people from putting in their bets


if there are fools that change their valuation because they see or believe to see some big buy/sell orders it is their problem..... best solution is to just let it run and not have some intellectually challenged bureucrats/socialists interfere with the markets

Every day it happens on here on horse racing. Large sums are put up on the right hand side with the express intent of laying the horse. The money disappears after a short time with nothing being matched but the individual(s) having laid at the shorter price. Can't be 100% sure that's whats happening but I've shocked them a few times by obliging some of their orders on right hand side for the money to swiftly disappear.