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Re:Why Is Spoofing Bad? by kasey_junk on Thursday April 23, 2015 @10:55AM (#9427133)
This is where the "intent" of spoofing becomes very very murky. There is a trading strategy called laddering (or sometimes confusingly layering) where a market maker will put orders at many levels of the order book at once (and sometimes at extreme depths, like 100s of levels). If they were to get swept in one direction there is absolutely no way they could trade all of those levels (their risk controls would kick in long before that). But, if the fills come in the correct order (ie 1 buy/1 sell) then the market makers would happily trade all of them.

Its even worse in pro-rata matched markets because participants will often put orders in at much higher quantities than they actually want to trade, so that they can get any of the fills. That is, they'd love to get filled for 100 contracts, but are putting in orders for 10000 contracts in order to get any of the matching. Again, if that filled in the proper order they'd happily trade it, but if not they don't want to.

So in both cases, spoofing and not spoofing, the actual ability to honor the orders is in question. So that in and of itself is not evidence of spoofing.

The difference (I believe) is that the market makers in the laddering cases would LOVE to trade every single one of those orders if it came in the right order and are not intending to change the markets behavior with the placing of those orders.

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