
SEC Wins Jury Trial in Layering, Manipulative Trading Case - hhs
https://www.sec.gov/news/press-release/2019-236
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anonu
I'm sure Matt Levine will have something interesting to say about this one!

Here's the original SEC complaint from March 2017:
[https://www.sec.gov/litigation/complaints/2017/comp-
pr2017-6...](https://www.sec.gov/litigation/complaints/2017/comp-
pr2017-63.pdf)

First thought: settle with the SEC. Don't fight it.

Second thought: and a quick perusal of the original complaint finds multiple
examples: if you're going to do something illegal don't write about your
illegal activities in an email. Let alone explain "layering works like
this..."

Third thought: I'm surprised it took this long to get these guys. There were a
few spoof related cases back in 2016... Famously the London spoofer with s&p
futures. This one didn't show up until 2017... And then took almost 3 years
through a jury trial.

~~~
bertjk
He has recently written about something similar:
[https://www.bloomberg.com/opinion/articles/2019-10-24/we-
had...](https://www.bloomberg.com/opinion/articles/2019-10-24/we-had-been-
hoping-to-get-paid)

I personally don't see the crime here though. What does it mean to place
orders you don't intend to execute? (It is not like they have some way of
reneging on the transaction if their bid/offer gets hit.) And in the
manipulation of prices, why would simply flashing new non-executing orders on
the screen cause market makers to change their prices? Don't the market makers
have some responsibility / agency around deciding what to price something at?

~~~
Traster
Market makers decide a fair value for a product, decide the volatility and
therefore quote a bid/ask spread. One important input into that decision is
what other players in the market are willing to trade at. If there's a huge
volume offering to buy at 10, I can buy at 11 safe in the knowledge that
generally I can offload that at 10 if things don't go well.

Remember, market makers aren't making a profit on every trade, they're making
a profit over many trades by taking on risk. Sometimes the market will
genuinely move due to outside news and they'll take losses in those cases.
They don't know they're going to be able to sell their position for a profit,
they just know if they quote correctly that they can extract a premium for
taking on that risk (and then alpha for being able to price better than other
people).

If you start systematically putting orders in the market that you don't want
to trade in order to influence other people's willingness to trade and then
pulling the orders out then you can make money off those market makers. The
problem is, that if you can trick people into doing bad trades they're going
to be systematically losing money. This means they'll change their strategy -
they can no longer trust the offers in the market as a source of information.
So now, because they don't have reliable information on what other people in
the market are offering, they can't be as confident, so they have to quote a
wider spread between bid and ask. So now the average punter who wants to sell
their position is going to pay a bigger premium to the market maker. So
there's less liquidity and it's more expensive to use the market- which goes
fundamentally against what the markets are there for.

------
rolltiide
The precursor settlement to the Ukrainian entity, Avalon's jury trial loss

> Lek Securities will pay a $1 million penalty plus $525,892 in disgorgement
> and prejudgment interest, and Sam Lek will pay a $420,000 penalty.

Curious what Avalon will do with the $25 million it earned. Sam Lek being an
owner of Avalon as well.

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vxxzy
How does this differ from HFTs flooding the order book and then cancelling?

~~~
hermitdev
HFT market makers are often responding to an IOI (Indication of Interest)
which an exchange will broadcast when they have orders on the book. A
responder that's interested in the trade will typically respond with an IOC
(Immediate or Cancel) order. The order book is handled on FIFO (First-in,
First-out) fulfillment method. If the IOC order isn't filled/partially filled,
it is immediately cancelled. This is standard practice and encouraged by
exchanges of their market makers.

Spoofing can be done many ways, but it's usually something like submitting a
day order at an unreasonable price, then cancelling, say 10ms later.

Of course, reality is a bit more nuanced than that.

Source: I've worked in IT in Finance my entire career and have often dealt
with SEC/FINRA/FBI requests for order history, and identifying which of our
client(s) made the orders. Typically for specific tickers on specific dates,
but sometimes for all tickers on specific dates, or for specific tickers for
several years. Last I had to run these reports, it was for a small dark pool
(like an exchange with unpublished prices). We typically had 10s of millions
of orders a day. Quite a bit smaller than an HFT firm will be handling, but
still quite a bit of data to work with and have to hand over on DVDs.

------
raviolo
This is great but what jurisdiction does SEC have over Ukrainian entity?
Sounds a bit like robo-callers with gozilian in fines issued and near zero
collected.

~~~
ThrustVectoring
Interacting with the US banking system is necessary for trading on US stock
exchanges, which means that they can be essentially banned from the US banking
system on pain of getting all their money seized.

