You didn't answer the Parent Poster. He's asking how can the law determine if the trader was spoofing or legitimately trading. What are the criteria for that.

Repeatedly following through with a second batch of orders just right after cancelling a large batch of offers in the opposite direction will do wonders to put the sincerity of the first batches into question.

I think it's safe to assume that this is not a "one daring bet" kind of manipulation, like e.g. badly disguised insider trading could be, it is rather wealth by a thousand papercuts. The pattern is very unlikely to be worthwhile without excessive repetition and there are only so many million times where you can believable claim that you wanted, then you didn't, and than you wanted the opposite, all in carefully timed lockstep.

What if what you described was done by an algorithm rather than by human trickery? What if that action was discovered "per chance" through machine learning? I myself don't feel there is anything morally wrong with that. Why should I feel differently when a human does it rather than an algorithm at an HFT firm?

Genuinely curious of your thoughts!

Late reply, but the question is too interesting to resist:

Posting an order is a statement of intent. If you allow a machine to post those in your name you take responsibility for the claims made by that machine. Discovery of that "one magic trick" by ML reminds me of the way toddlers learn all kinds of mischievous "life hacks" like "I can reach goal X by dropping object Y" before they start to respect more cooperative forms of interaction. I am skeptical of allowing toddlers on the trade floor. And if you did allow then, you would want to have mechanisms to make their parents take responsibility while their children are not yet able to.

If the decision-makers at the exchanges running the show were not so much closer with those trading for trade than with those trading for actual ownership, they would have curbed this abuse very early. Maybe by introducing a sufficiently low upper limit to the volume of offers that can be cancelled (relative to the volume of offers that are followed through), or some form of progressive cancellation fee that would protect the market from this form of abuse. The observation that only external supervision put an end to it (instead of the "house rules" of the exchanges) makes it difficult for me to dismiss as paranoid the claims made in the discussion here that he just lacked the right friends to pull this off.

Same way we decide everything, a sitting judge or a jury of your peers.

I know it's a common sentiment that "You can sue anyone for anything".

But is it a common sentiment that you can be charged with anything by a district attorney?

>But is it a common sentiment that you can be charged with anything by a district attorney?

Pretty much. If you piss them off enough, or if they are trying to get elected to something else and think you are a good way to do it, then yes, they will charge you with something and keep going at it. (See: Aaron Schwartz).

It's not "anything", it's "intent to defraud". The prosecutor needs to provide a minimum standard of evidence to bring charges, they don't need to prove intent (to hear the case). The rest is like I said.

AIUI the answer is basically "it's very hard to prove", which is why very few people actually get punished for it. IIRC in the flash crash trader's case he actually had emails that made it very clear what his intentions were with the orders he placed (but I could be misremembering).

A spoof is about orders, not trades. Those are two very different things.

I thought it is called negotiation.